State Auto Third-Quarter Financials Still in the Red

Price increases and a relatively mild weather season helped State Automobile Mutual Insurance Company do better in the third quarter of 2012 compared with 2011, but the insurer still couldn’t get back in the black and reported a $5.5 million net loss for the quarter.

At the end of the third quarter of 2011, the insurance carrier reported a steeper $58.7 million loss.

Much of that difference can be attributed to lower catastrophe losses, which shrunk 88 percent, going from $60.8 million in the third quarter of 2011 to $7.2 million in the third quarter of this year.

“Third-quarter results were helped by significantly better weather, continued improvements in our ex-catastrophe loss ratio performance for our personal, business and specialty insurance segments, and an improving pricing environment,” CEO Bob Restrepo said in a statement.

In a conference call with investors, Restrepo said that the insurer has increased personal auto rates by 4.3 percent this year to “get ahead of the loss curve,” with pricing plans that “call for somewhat higher pricing levels in 2013.”

“As these pricing initiatives earn out, we expect improving margins on our largest and traditionally most profitable line,” Restrepo said.

Restrepo also highlighted rising claim sizes in liability coverage.

The insurer is continuing to close the gap on its losses throughout this year. Last quarter, State Auto reported a net loss of $2.7 million compared with the $214.1 million net loss reported in the second quarter of 2011.

Insurer Faces Little Exposure to Superstorm Sandy

During the conference call, executives fielded a couple of questions related to Superstorm Sandy, which brought inclement weather that wreaked havoc on several states in the Northeastern U.S. at the end of October.

Although the executives declined to offer solid estimates on claims statistics at this early stage of disaster cleanup, State Auto has seen “little claim activity from New Jersey and New York,” where most insurance modeling firms estimate 70 percent to 80 percent of the damage to be located, according to Restrepo.

“We don’t expect nearly the same kind of exposure that some other northeastern carriers expect to see,” he said.

The insurer only expects “incidental claims” in New Jersey and New York, he said. In Virginia and Maryland, Sandy-impacted states where State Auto has more business exposure to storm damage, the insurer has “traditionally been well inland, 50 miles or more inland.”

State Auto was most exposed to catastrophe insurance losses from Superstorm Sandy in northeastern Ohio and western Pennsylvania, where the insurer “had the bulk of our claims,” said Restrepo, highlighting cities in Ohio, including Cleveland, Youngstown and Mentor.

“As the storm exited through western Pennsylvania it created a lot of flooding activity as well as some wind damage in northeastern Ohio,” he said.

Restrepo reported that the insurer had received under 2,000 claims related to the disaster when the conference call was hosted Nov. 6, although he added that the figure was a “meaningless number.”

“It’s very, very early for us to estimate what the total claim volume will be,” he said.

Restrepo also reported that “the vast majority” of those claims were homeowners claims, which made up more than 80 percent of all reported claims.

“Obviously, with flooding exposure, you’d expect to see a lot of automobile comprehensive losses, but we just haven’t seen much of that at all,” he said. “It’s virtually all property-related and virtually all of that is homeowners-related.”

State Auto shouldn’t see any significantly costly claims so far from Superstorm Sandy, according to Restrepo, who said that the absence of losses exceeding $100,000 “gives us some feeling of comfort looking into the future.”

“We tend to get the most significant claims earlier on,” he said. “The numbers are tailing off.”

However, the insurer has seen claims trickle in far after a disaster actually occurs, with Restrepo highlighting storms in Ohio this year that struck the state in the summertime. The Ohio Insurance Institute (OII) estimated that the state sustained more than $30 million in auto-related losses, with the average auto-damage claim being about $2,200, from what meteorologists called a “derecho” storm.

“One of the things we learned from derecho is that these claims can be reported for six weeks after the event,” Restrepo said.

Insurance Industry Benefitting from Lower Catastrophe Losses

Third quarter returns from other insurers have generally shown the same drop in catastrophe-related losses, giving those companies better grasp on profits and pricing levels. Insurers reporting better 2012 compared with 2011 figures included:

Allstate ($723 million gained in 3Q 2012 compared with $175 million gained in 3Q 2011)
Liberty Mutual ($465 million gained compared with $111 million lost)
Mercury ($66 million gained compared with $3.8 million lost)
Progressive ($277 million gained compared with $150 million gained)
The Hartford ($401 million gained compared with $60 million gained)
Travelers ($864 million gained compared with $333 million gained)

During quarterly discussions with investors, Liberty Mutual and Travelers also expressed interest in continuing to increase prices.

While State Auto reported a loss for the third quarter, the fact that the car insurer narrowed that loss figure compared with the same period last year bodes well, Restrepo said.

“The third-quarter results we think mask underlying improvements in our business and a brightening outlook,” he said.

About Charles Nguyen
Charles Nguyen is an enterprising journalist who reported for Patch.com and the Desert Dispatch and was the editor in chief of the Guardian (the twice-weekly newspaper at the University of California, San Diego) before coming to Online Auto Insurance News.

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