State Auto Financial Corporation (NASDAQ:STFC) today reported second quarter 2018 net income of $6.0 million, or $0.14 per diluted share, compared to net income of $8.7 million, or $0.21 per diluted share, for the same 2017 period. Net loss from operations per diluted share for the second quarter 2018 was $0.08 versus net loss from operations per diluted share of $0.04 for the same 2017 period.

For the first six months of 2018, STFC had net income of $3.9 million, or $0.09 per diluted share, compared to net income of $5.4 million, or $0.13 per diluted share, for the same 2017 period. Net earnings from operations1 per diluted share for the first six months of 2018 was $0.08 versus net loss from operations1 per diluted share of $0.24 for the same 2017 period.

GAAP Operating Results

STFC’s GAAP combined ratio for the second quarter 2018 was 107.0 compared to 106.2 for the same 2017 period. Catastrophe losses during the second quarter 2018 accounted for 12.2 points of the 70.8 total loss ratio points, or $37.5 million, versus 7.9 points of the total 71.9 loss ratio points, or $25.2 million, for the same period in 2017. Non-­catastrophe losses and ALAE during the second quarter 2018 included 5.9 points of favorable development relating to prior years, or $18.1 million, versus 4.6 points of favorable development, or $14.8 million, for the same period in 2017.

Net written premium for the second quarter 2018 decreased 9.7% compared to the same period in 2017. By insurance segment, net written premium for the personal and commercial segments increased 23.0% and 2.8%, respectively, and the specialty segment decreased 96.7%. 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 second quarter 2018 compared to the second quarter 2017. The increase in the commercial segment was primarily driven by rate increases and a higher level of new business production from commercial auto, middle market commercial and farm & ranch during the second quarter 2018 compared to the second quarter 2017. The decline in the specialty insurance segment was a result of our decision to exit specialty business.

STFC’s GAAP combined ratio for the first six months of 2018 was 104.8 compared to 107.54 for the same 2017 period. Catastrophe losses for the first six months of 2018 accounted for 7.6 points of the 69.1 total loss ratio points, or $47.3 million, versus 9.3 points of the total 72.84 loss ratio points, or $59.5 million, for the same period in 2017. Non-catastrophe losses and ALAE for the first six months of 2018 included 5.5 points of favorable development relating to prior years, or $34.1 million, versus 3.1 points of favorable development, or $19.6 million, for the same period in 2017.

Net written premium for the first six months of 2018 decreased 7.4% compared to the same period in 2017. By insurance segment, net written premium for the personal and commercial segments increased 22.7% and 5.0%, respectively, and the specialty segment decreased 89.3%. The trends in the personal and commercial net written premiums are due to the same factors discussed above for the second quarter. The decline in the specialty insurance segment was a result of our decision to exit specialty business.

SAP Personal and Commercial Operating Results

The SAP personal and commercial segments, our ongoing lines of business, combined ratio2 for the second quarter 2018 was 104.7 compared to 105.3 for the same 2017 period. Catastrophe losses during the second quarter 2018 accounted for 13.4 points of the total 70.1 loss ratio points, or $37.7 million, versus 9.5 points of the total 72.5 loss ratio points, or $24.5 million, for the same period in 2017. Non-catastrophe losses and ALAE during the second quarter 2018 included 7.2 points of favorable development relating to prior years, or $20.2 million, versus 6.1 points of favorable development, or $15.7 million, for the same period in 2017.

The SAP personal and commercial segments, our ongoing lines of business, combined ratio for the first six months of 2018 was 103.0 compared to 106.5 for the same 2017 period. Catastrophe losses during the first six months of 2018 accounted for 8.6 points of the total 68.3 loss ratio points, or $47.5 million, versus 11.0 points of the total 72.8 loss ratio points, or $56.6 million, for the same period in 2017. Non-catastrophe losses and ALAE during the first six months of 2018 included 6.6 points of favorable development relating to prior years, or $36.5 million, versus 4.1 points of favorable development, or $21.0 million, for the same period in 2017.

Book Value and Return on Equity

STFC’s book value was $19.75 per share as of June 30, 2018, compared to $20.634 on Dec. 31, 2017. The decrease was driven by the market value of our investment portfolio. Return on stockholders’ equity for the 12 months ended June 30, 2018, was (1.9)% compared to 5.4% for the 12 months ended June 30, 2017.

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

"Our journey to profitable growth continued this quarter with some significant milestones being achieved. Most notably our largest line, personal auto, was both profitable and growing. We've worked very hard over the last three years to get to this point and with the help of our agency partners, we were successful. In addition, there was also strong growth in our homeowners line. Perhaps most significantly, for our ongoing lines of business, personal and commercial, we achieved a non-catastrophe combined ratio of 91.33. This is a clear indication that our hard work in building our digital only technology, new products and improved claims handling is paying off.

"We will complete the digital rollout for commercial auto and small commercial package by the end of September and we expect to begin to see the benefit of the changes in these lines in the last half of this year, increasing over the coming years.

"There is much work left to be done, but in both the first quarter and more significantly in the second, our momentum is building and our outlook is bright."

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. 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.

1 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 gain (loss), net of applicable taxes, on investment activity for the periods being reported. For STFC, this amounted to income of $0.22 per diluted share for the second quarter of 2018 and income of $0.01 year-to-date 2018 versus income of $0.25 per diluted share for the second quarter 2017 and income of $0.37 year-to-date 2017.

2 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 21 of this release.

3 The SAP non-catastrophe combined ratio is a financial measure of the total combined ratio less the impact of catastrophe losses. The following table reconciles the as reported combined ratio to the pro forma non-catastrophe combined ratio for the second quarter 2018:

         
  SAP Personal & Commercial Insurance Segments   SAP Insurance Segment
 
As reported   Cat loss and ALAE   Pro forma As reported   Cat loss and ALAE   Pro forma
Net earned premiums $ 280.5 $ — $ 280.5 $ 307.5

$

— $ 307.5
Total Loss and LAE $ 196.6 $ 37.7 $ 158.9 $ 218.0

$

37.5 $ 180.5
Underwriting expenses $ 105.9 $ — $ 105.9 $ 110.5 $ — $ 110.5
 
Total Loss and LAE ratio 70.1 % 13.4 % 56.7 % 70.9 % 12.2 % 58.7 %
Expense ratio 34.6 % — % 34.6 % 35.8 % — % 35.8 %
Combined ratio   104.7 %   13.4 %   91.3 %   106.7 %   12.2 %   94.5 %

4 As previously disclosed, the results for the first six months of 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 six months ended June 30, 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 quarterly period ending March 31, 2018, for further information.

STFC has scheduled a conference call with interested investors for Monday, August 6, at 11 a.m. ET to discuss the Company’s second 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., August 6, by calling 855-859-2056, conference ID 1699558. Supplemental schedules detailing the Company’s second 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
($ in millions, except per share amounts)
(unaudited)   Three months ended June 30   Six months ended June 30
2018   2017 2018   20174
Net premiums written $ 308.1   $ 341.3   $ 600.3   $ 648.2  
 
Earned premiums 307.5 320.1 622.4 638.2
Net investment income 21.5 19.1 41.4 37.8
Net investment gain 12.1 15.8 0.4 23.6
Other income 0.6   0.7   1.2   1.2  
Total revenue 341.7   355.7   665.4   700.8  
 
Income before federal income taxes 7.7 11.9 4.4 7.9
 
Federal income tax expense 1.7   3.2   0.5   2.5  
Net income $ 6.0   $ 8.7   $ 3.9   $ 5.4  
 
Earnings per common share:
- basic $ 0.14 $ 0.21 $ 0.09 $ 0.13
- diluted $ 0.14 $ 0.21 $ 0.09 $ 0.13
(Loss) earnings per share from operations (A):
- basic $ (0.08 ) $ (0.04 ) $ 0.08 $ (0.24 )
- diluted $ (0.08 ) $ (0.04 ) $ 0.08 $ (0.24 )
Weighted average shares outstanding:
- basic 42.8 42.1 42.7 42.0
- diluted 43.4 42.5 43.3 42.5
Return on average equity (LTM) (1.9 )% 5.4 %
Book value per share $ 19.75 $ 21.65
Dividends paid per share $ 0.10 $ 0.10 $ 0.20 $ 0.20
Total shares outstanding 42.9 42.1
 
GAAP ratios:
Cat loss and ALAE ratio 12.2 7.9 7.6 9.3
Non-cat loss and LAE ratio 58.6   64.0   61.5   63.5  
Loss and LAE ratio 70.8 71.9 69.1 72.8
Expense ratio 36.2   34.3   35.7   34.7  
Combined ratio 107.0   106.2   104.8   107.5  
 
(A) Reconciliation of non-GAAP financial measure:
Net (loss) income from operations:
Net income $ 6.0 $ 8.7 $ 3.9 $ 5.4
Net investment gain, net of tax 9.5   10.3   0.3   15.4  
Net (loss) income from operations $ (3.5 ) $ (1.6 ) $ 3.6   $ (10.0 )
 
 

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

 
Condensed Consolidated Balance Sheets
($ and shares in millions, except per share amounts)
(unaudited)   June 30   December 31
2018

20174

ASSETS
Fixed maturities, available-for-sale, at fair value (amortized cost $2,206.9 and $2,173.1, respectively) $ 2,178.0 $ 2,192.8
Equity securities 362.8 365.3
Other invested assets 54.1 56.0
Other invested assets, at cost 5.6 5.6
Notes receivable from affiliate 70.0   70.0  
Total investments 2,670.5 2,689.7
 
Cash and cash equivalents 40.8 91.5
Accrued investment income and other assets 39.0 36.5
Deferred policy acquisition costs 104.6 110.3
Reinsurance recoverable on losses and loss expenses payable 5.1 3.1
Prepaid reinsurance premiums 6.9 6.4
Current federal income taxes 5.7 4.8
Net deferred federal income taxes 67.1 58.8
Property and equipment, net 7.1   7.3  
Total assets $ 2,946.8   $ 3,008.4  
 
LIABILITIES
Losses and loss expenses payable $ 1,234.5 $ 1,255.6
Unearned premiums 590.1 611.8
Notes payable (affiliates $15.2 and $15.2, respectively) 122.0 122.1
Pension and postretirement benefits 57.9 64.5
Due to affiliate 7.1 2.7
Other liabilities 88.2   76.7  
Total liabilities 2,099.8   2,133.4  
 
STOCKHOLDERS' EQUITY
Common stock, without par value. Authorized 100.0 shares; 49.7 and 49.2 shares issued, respectively, at stated value of $2.50 per share 124.1 123.0
Treasury stock, 6.8 and 6.8 shares, respectively, at cost (116.9 ) (116.8 )
Additional paid-in capital 184.8 171.8
Accumulated other comprehensive (loss) income (57.3 ) 36.7
Retained earnings 712.3   660.3  
Total stockholders' equity 847.0   875.0  
Total liabilities and stockholders' equity $ 2,946.8   $ 3,008.4  
 
 

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

 
Condensed Consolidated Statements of Income
($ in millions, except per share amounts)
(unaudited)   Three months ended   Six months ended
June 30 June 30
2018   2017 2018   20174
Earned premiums $ 307.5 $ 320.1 $ 622.4 $ 638.2
Net investment income 21.5 19.1 41.4 37.8
Net investment gain 12.1 15.8 0.4 23.6
Other income from affiliates 0.6   0.7   1.2   1.2
Total revenues 341.7   355.7   665.4   700.8
 
Losses and loss expenses 217.8 230.4 430.1 464.7
Acquisition and operating expenses 111.3 109.9 222.1 221.4
Interest expense 1.7 1.5 3.3 2.9
Other expenses 3.2   2.0   5.5   3.9
Total expenses 334.0   343.8   661.0   692.9
 
Income before federal income taxes 7.7 11.9 4.4 7.9
Federal income tax expense 1.7   3.2   0.5   2.5
Net income $ 6.0   $ 8.7   $ 3.9   $ 5.4
Earnings per common share:
Basic $ 0.14   $ 0.21   $ 0.09   $ 0.13
Diluted $ 0.14   $ 0.21   $ 0.09   $ 0.13
Dividends paid per common share $ 0.10   $ 0.10   $ 0.20   $ 0.20
 
 

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

     
Consolidated Statements of Comprehensive Income
($ in millions)
(unaudited) Three months ended
June 30
2018
Net income $ 6.0
Other comprehensive loss, net of tax:
Net unrealized holding losses on fixed maturities:
Unrealized holding losses (10.2 )
Reclassification adjustments for gains realized in net income (1.3 )
Income tax benefit 2.4  
Total net unrealized holding losses on fixed maturities (9.1 )
Net unrecognized benefit plan obligations:
Reclassification adjustments for amortization to statements of income:
Prior service credit (1.3 )
Net actuarial loss 2.0
Income tax expense (0.1 )
Total net unrecognized benefit plan obligations 0.6  
Other comprehensive loss (8.5 )
Comprehensive loss $ (2.5 )
     
 
     
($ in millions) Three months ended
June 30
2017
Net income $ 8.7
Other comprehensive income, net of tax:
Net unrealized holding gains on investments:
Unrealized holding gains 23.8
Reclassification adjustments for gains realized in net income (15.8 )
Income tax expense (2.8 )
Total net unrealized holding gains on investments 5.2  
Net unrecognized benefit plan obligations:
Reclassification adjustments for amortization to statements of income:
Prior service credit (1.4 )
Net actuarial loss 1.9
Income tax expense (0.2 )
Total net unrecognized benefit plan obligations 0.3  
Other comprehensive income 5.5  
Comprehensive income $ 14.2  
         
 
 

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

 

   
Consolidated Statements of Comprehensive Income
($ in millions)
(unaudited) Six months ended
June 30
2018
Net income $ 3.9
Other comprehensive loss, net of tax:
Net unrealized holding losses on fixed maturities:
Unrealized holding losses (46.9 )
Reclassification adjustments for gains realized in net income (1.7 )
Income tax benefit 10.2  
Total net unrealized holding losses on fixed maturities (38.4 )
Net unrecognized benefit plan obligations:
Reclassification adjustments for amortization to statements of income:
Prior service credit (2.7 )
Net actuarial loss 4.2
Income tax expense (0.3 )
Total net unrecognized benefit plan obligations 1.2  
Other comprehensive loss (37.2 )
Comprehensive loss $ (33.3 )
     
     
($ in millions) Six months ended
June 30
20174
Net income $ 5.4
Other comprehensive income, net of tax:
Net unrealized holding gains on investments:
Unrealized holding gains 54.6
Reclassification adjustments for gains realized in net income (23.6 )
Income tax expense (10.8 )
Total net unrealized holding gains on investments 20.2  
Net unrecognized benefit plan obligations:
Reclassification adjustments for amortization to statements of income:
Prior service credit (2.8 )
Net actuarial loss 4.0
Income tax expense (0.5 )
Total net unrecognized benefit plan obligations 0.7  
Other comprehensive income 20.9  
Comprehensive income $ 26.3  
         
 
 

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

 
Condensed Consolidated Statement of Stockholders' Equity
($ and shares in millions)
(unaudited)   Six months ended   Year Ended
June 30 December 31
2018 20174
Common shares:
Balance at beginning of year 49.2 48.6
Issuance of shares 0.5   0.6  
Balance at period ended 49.7   49.2  
 
Treasury shares:
Balance at beginning of year (6.8 ) (6.8 )
Balance at period ended (6.8 ) (6.8 )
 
Common stock:
Balance at beginning of year $ 123.0 $ 121.6
Issuance of shares 1.1   1.4  
Balance at period ended 124.1   123.0  
 
Treasury stock:
Balance at beginning of year $ (116.8 ) $ (116.5 )
Shares acquired on stock award exercises and vested restricted shares (0.1 ) (0.3 )
Balance at beginning of year and period ended (116.9 ) (116.8 )
 
Additional paid-in capital:
Balance at beginning of year $ 171.8 $ 159.9
Issuance of common stock 8.1 8.8
Stock awards granted 4.9   3.1  
Balance at period ended 184.8   171.8  
 
Accumulated other comprehensive income:
Balance at beginning of the 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 losses on available-for-sale investments, net of tax (38.4 ) 3.2
Change in unrecognized benefit plan obligations, net of tax 1.2   1.0  
Balance at period ended (57.3 ) 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) 3.9 (10.7 )
Cash dividends paid (8.7 ) (16.9 )
Balance at period ended 712.3   660.3  
 
Total stockholders' equity at period ended $ 847.0   $ 875.0  
 
 

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

 
Condensed Consolidated Statements of Cash Flow
($ in millions)
(unaudited)   Six months ended
June 30
2018   20174
Cash flows from operating activities:
Net income $ 3.9 $ 5.4
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization, net 4.6 6.1
Share-based compensation — 2.8
Net investment gain (0.4 ) (23.6 )
Changes in operating assets and liabilities:
Deferred policy acquisition costs 5.7 4.2
Accrued investment income and other assets (2.2 ) 0.1
Postretirement and pension benefits (5.5 ) (6.0 )
Other liabilities and due to/from affiliates, net 15.8 (32.7 )
Reinsurance recoverable on losses and loss expenses payable and prepaid reinsurance premiums (2.5 ) 1.0
Losses and loss expenses payable (21.1 ) 52.0
Unearned premiums (21.7 ) 9.6
Deferred tax expense on share-based awards 0.2 1.3
Federal income taxes 0.6   1.2  
Net cash (used in) provided by operating activities (22.6 ) 21.4  
Cash flows from investing activities:
Purchases of fixed maturities available-for-sale (207.9 ) (244.5 )
Purchases of equity securities (78.4 ) (69.0 )
Purchases of other invested assets (0.9 ) (0.7 )
Maturities, calls and pay downs of fixed maturities available-for-sale 110.2 94.5
Sales of fixed maturities available-for-sale 60.9 108.2
Sales of equity securities 81.8 91.9
Sales of other invested assets 0.7   0.5  
Net cash used in investing activities (33.6 ) (19.1 )
Cash flows from financing activities:
Proceeds from issuance of common stock 14.3 4.1
Payments to acquire treasury stock (0.1 ) (0.2 )
Payment of dividends (8.7 ) (8.5 )
Net cash provided by (used in) financing activities 5.5   (4.6 )
Net decrease in cash and cash equivalents (50.7 ) (2.3 )
Cash and cash equivalents at beginning of period 91.5   51.1  
Cash and cash equivalents at end of period $ 40.8   $ 48.8  

Supplemental disclosures:

Interest paid (affiliates $0.5 and $0.4, respectively) $ 3.3   $ 2.8  
 
 

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

 
Fixed Maturities
($ in millions, at fair value)
(unaudited)   June 30       December 31  
    2018 % 2017 %
Fixed Maturities:

U.S. treasury securities and obligations

of U.S. government agencies $ 415.3 19.0 % $ 436.9 19.9 %
Obligations of states and political subdivisions 454.5 20.9 % 525.8 24.0 %
Corporate securities 526.9 24.2 % 529.7 24.2 %
U.S. government agencies mortgage-backed securities 781.3   35.9 % 700.4   31.9 %
Total fixed maturities $ 2,178.0   100.0 % $ 2,192.8   100.0 %
 
Ratings Quality*
AAA $ 57.2 2.6 % $ 56.0 2.6 %
AA** 1,338.2 61.4 % 1,329.6 60.5 %
A 397.5 18.3 % 450.1 20.5 %
BBB 380.8 17.5 % 352.7 16.2 %
Below investment grade 4.3   0.2 % 4.4   0.2 %
Total fixed maturities $ 2,178.0   100.0 % $ 2,192.8   100.0 %
 
TIPS, at fair value $ 156.5 $ 155.8
TIPS, at amortized cost $ 150.6 $ 146.5
Obligations of states and political subdivisions:
By type of bond
State general obligations $ 13.6 3.0 % $ 13.9 2.6 %
Local general obligations 77.0 16.9 % 85.0 16.2 %
Revenue bonds 258.1 56.8 % 303.8 57.8 %
Pre Refunded bonds 32.2 7.0 % 40.2 7.6 %
Other 73.6   16.3 % 82.9   15.8 %
Total $ 454.5   100.0 % $ 525.8   100.0 %
Top 10 States Top 10 States
New York $ 70.3 15.5 % New York $ 78.1 14.9 %
Texas 52.8 11.6 % Texas 53.5 10.2 %
Ohio 45.1 9.9 % Ohio 50.6 9.6 %
Washington 45.0 9.9 % Washington 49.2 9.4 %
North Carolina 23.0 5.1 % Georgia 26.7 5.1 %
Nevada 20.2 4.4 % North Carolina 23.5 4.5 %
Georgia 19.0 4.2 % Nevada 20.8 4.0 %
Maryland 17.5 3.9 % Maryland 18.0 3.4 %
Dist of Columbia 17.5 3.9 % Dist of Columbia 17.9 3.4 %
Louisiana 17.0 3.7 % Louisiana 17.4 3.3 %
 
Ratings Quality*
AAA $ 38.2 8.4 % $ 36.6 7.0 %
AA** 272.6 60.0 % 318.2 60.5 %
A 134.0 29.5 % 161.1 30.6 %
BBB 9.7   2.1 % 9.9   1.9 %
Total $ 454.5   100.0 % $ 525.8   100.0 %
                         
*Based on ratings by nationally recognized rating agencies. All ratings exclude credit enhancements.
**The AA rating category includes securities which have been either pre-refunded or escrowed to maturity.
 
 

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

 
Net Investment Income
($ in millions)
(unaudited)          
6/30/2017 9/30/2017 12/31/2017 3/31/2018 6/30/2018
Quarter to Date
Gross investment income:
Fixed maturities $ 14.2 $ 14.8 $ 14.5 $ 15.0 $ 14.9
TIPS 1.7 0.6 1.6 1.1 2.0
Total fixed maturities 15.9 15.4 16.1 16.1 16.9
Equity securities 2.0 2.0 4.8 2.5 3.1
Other 1.5 1.6 1.7 1.7 1.8
Total gross investment income 19.4 19.0 22.6 20.3 21.8
Less: Investment expenses 0.3 0.3 0.3 0.4 0.3
Net investment income $ 19.1 $ 18.7 $ 22.3 $ 19.9 $ 21.5
 
Year to Date
Gross investment income:
Fixed maturities $ 28.8 $ 43.6 $ 58.1 $ 15.0 $ 29.9
TIPS 2.9 3.5 5.1 1.1 3.1
Total fixed maturities 31.7 47.1 63.2 16.1 33.0
Equity securities 3.7 5.7 10.5 2.5 5.6
Other 3.0 4.6 6.3 1.7 3.5
Total gross investment income 38.4 57.4 80.0 20.3 42.1
Less: Investment expenses 0.6 0.9 1.2 0.4 0.7
Net investment income $ 37.8 $ 56.5 $ 78.8 $ 19.9 $ 41.4
 
6/30/2017 9/30/2017 12/31/2017 3/31/2018 6/30/2018
TIPS, fair value $ 170.7 $ 153.5 $ 155.8 $ 147.4 $ 156.5
TIPS, book value $ 163.4 $ 145.5 $ 146.5 $ 140.7 $ 150.6
 
     

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 at June 30, 2018, March 31, 2018 and December 31, 2017:
 
June 30 March 31 December 31
2018 2018 20174
Deferred tax assets:
Unearned premiums not currently deductible $ 24.5 $ 24.6 $ 25.5
Losses and loss expenses payable discounting 11.6 11.6 22.0
Postretirement and pension benefits 12.1 13.4 13.6
Net unrealized holding losses on investments 6.1 3.7
Realized loss on other-than-temporary impairment 1.9 2.2 2.1
Other liabilities 10.4 8.8 9.2
Net operating loss carryforward 30.3 29.9 34.3
Tax credit carryforwards 2.7 2.7 3.7
Other — — 2.5
Total deferred tax assets 99.6 96.9 112.9
Deferred tax liabilities:
Deferral of policy acquisition costs 22.0 22.1 23.1
Net unrealized holding gains on investments — — 20.3
Other 10.5 8.2 10.7
Total deferred tax liabilities 32.5 30.3 54.1
Net deferred federal income taxes $ 67.1 $ 66.6 $ 58.8
                   
   

The following table sets forth the components of federal income tax expense for the three and six months ended June 30, 2018 and 2017:

 
  Three months ended June 30   Six months ended June 30
2018   2017 2018   20174
Income before federal income taxes $ 7.7 $ 11.9 $ 4.4 $ 7.9
Federal income tax expense:
Current — 0.2 (1.0 ) 0.1
Deferred 1.7   3.0   1.5   2.4  
Total federal income tax expense 1.7   3.2   0.5   2.5  
Net income $ 6.0   $ 8.7   $ 3.9   $ 5.4  
                                 
 
 

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

 
SAP Personal Insurance Segment Results
(unaudited)
($ in millions)
Three months ended June 30, 2018   Personal Auto   Homeowners   Other Personal   Total
 
Net written premiums $ 106.2 $ 72.1 $ 6.6 $ 184.9
Net earned premiums 99.1 60.4 5.4 164.9
Losses and LAE incurred:
Cat loss and ALAE 3.8 22.3 1.0 27.1
Non-cat loss and ALAE
Prior accident years non-cat loss and ALAE (7.2 ) (2.9 ) (0.5 ) (10.6 )
Current accident year non-cat loss and ALAE 64.8   25.9   3.6   94.3  
Total non-cat loss and ALAE 57.6   23.0   3.1   83.7  
Total Loss and ALAE 61.4 45.3 4.1 110.8
ULAE 5.9   4.6   0.2   10.7  
Total Loss and LAE 67.3 49.9 4.3 121.5
Underwriting expenses 31.4   22.8   2.4   56.6  
Net underwriting gain (loss) $ 0.4   $ (12.3 ) $ (1.3 ) $ (13.2 )
 
Cat loss and ALAE ratio 3.9 % 36.9 % 18.2 % 16.4 %
Non-cat loss and ALAE ratio
Prior accident years non-cat loss and ALAE ratio (7.2 )% (4.8 )% (9.8 )% (6.4 )%
Current accident year non-cat loss and ALAE ratio 65.3 % 43.0 % 65.6 % 57.2 %
Total non-cat loss and ALAE ratio 58.1 % 38.2 % 55.8 % 50.8 %
Total Loss and ALAE ratio 62.0 % 75.1 % 74.0 % 67.2 %
ULAE ratio 6.0 % 7.6 % 5.2 % 6.5 %
Total Loss and LAE ratio 68.0 % 82.7 % 79.2 % 73.7 %
Expense ratio 29.5 % 31.5 % 36.1 % 30.6 %
Combined ratio 97.5 %   114.2 %   115.3 %   104.3 %
                 
($ in millions)
Three months ended June 30, 2017 Personal Auto Homeowners Other Personal Total
 
Net written premiums $ 86.2 $ 59.6 $ 4.6 $ 150.4
Net earned premiums 83.7 54.5 4.7 142.9
Losses and LAE incurred:
Cat loss and ALAE 2.7 11.1 (0.3 ) 13.5
Non-cat loss and ALAE
Prior accident years non-cat loss and ALAE (1.2 ) (0.9 ) 2.0 (0.1 )
Current accident year non-cat loss and ALAE 62.2   27.9   1.7   91.8  
Total non-cat loss and ALAE 61.0   27.0   3.7   91.7  
Total Loss and ALAE 63.7 38.1 3.4 105.2
ULAE 5.6   3.4   0.2   9.2  
Total Loss and LAE 69.3 41.5 3.6 114.4
Underwriting expenses 23.0   18.3   1.7   43.0  
Net underwriting loss $ (8.6 ) $ (5.3 ) $ (0.6 ) $ (14.5 )
 
Cat loss and ALAE ratio 3.2 % 20.4 % (5.5 )% 9.5 %
Non-cat loss and ALAE ratio
Prior accident years non-cat loss and ALAE ratio (1.4 )% (1.7 )% 43.0 % (0.1 )%
Current accident year non-cat loss and ALAE ratio 74.2 % 51.2 % 35.2 % 64.2 %
Total non-cat loss and ALAE ratio 72.8 % 49.5 % 78.2 % 64.1 %
Total Loss and ALAE ratio 76.0 % 69.9 % 72.7 % 73.6 %
ULAE ratio 6.8 % 6.2 % 7.1 % 6.5 %
Total Loss and LAE ratio 82.8 % 76.1 % 79.8 % 80.1 %
Expense ratio 26.7 % 30.7 % 35.2 % 28.5 %
Combined ratio 109.5 % 106.8 % 115.0 % 108.6 %
 
       

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

 
($ in millions)
Six months ended June 30, 2018 Personal Auto Homeowners Other Personal Total
 
Net written premiums $ 208.1 $ 126.4 $ 12.1 $ 346.6
Net earned premiums 192.6 118.3 10.3 321.2
Losses and LAE incurred:
Cat loss and ALAE 3.9 27.0 1.4 32.3
Non-cat loss and ALAE
Prior accident years non-cat loss and ALAE (11.2 ) (5.7 ) (0.3 ) (17.2 )
Current accident year non-cat loss and ALAE 131.7   54.3   5.6   191.6  
Total non-cat loss and ALAE 120.5   48.6   5.3   174.4  
Total Loss and ALAE 124.4 75.6 6.7 206.7
ULAE 10.9   8.6   0.5   20.0  
Total Loss and LAE 135.3 84.2 7.2 226.7
Underwriting expenses 60.3   41.0   4.7   106.0  
Net underwriting loss $ (3.0 ) $ (6.9 ) $ (1.6 ) $ (11.5 )
 
Cat loss and ALAE ratio 2.1 % 22.8 % 13.3 % 10.1 %
Non-cat loss and ALAE ratio
Prior accident years non-cat loss and ALAE ratio (5.8 )% (4.8 )% (2.9 )% (5.4 )%
Current accident year non-cat loss and ALAE ratio 68.3 % 45.9 % 53.9 % 59.7 %
Total non-cat loss and ALAE ratio 62.5 % 41.1 % 51.0 % 54.3 %
Total Loss and ALAE ratio 64.6 % 64.0 % 64.3 % 64.4 %
ULAE ratio 5.6 % 7.2 % 5.3 % 6.2 %
Total Loss and LAE ratio 70.2 % 71.2 % 69.6 % 70.6 %
Expense ratio 29.0 % 32.4 % 39.0 % 30.6 %
Combined ratio 99.2 %   103.6 %   108.6 %   101.2 %
                 
($ in millions)
Six months ended June 30, 2017 Personal Auto4 Homeowners Other Personal Total4
 
Net written premiums $ 168.8 $ 104.8 $ 8.8 $ 282.4
Net earned premiums 166.9 110.0 9.6 286.5
Losses and LAE incurred:
Cat loss and ALAE 5.9 29.1 0.7 35.7
Non-cat loss and ALAE
Prior accident years non-cat loss and ALAE (1.8 ) 1.9 2.1 2.2
Current accident year non-cat loss and ALAE 118.6   48.0   3.2   169.8  
Total non-cat loss and ALAE 116.8   49.9   5.3   172.0  
Total Loss and ALAE 122.7 79.0 6.0 207.7
ULAE 10.3   8.1   0.7   19.1  
Total Loss and LAE 133.0 87.1 6.7 226.8
Underwriting expenses 46.6   33.8   3.3   83.7  
Net underwriting loss $ (12.7 ) $ (10.9 ) $ (0.4 ) $ (24.0 )
 
Cat loss and ALAE ratio 3.5 % 26.5 % 7.0 % 12.5 %
Non-cat loss and ALAE ratio
Prior accident years non-cat loss and ALAE ratio (1.1 )% 1.7 % 21.4 % 0.8 %
Current accident year non-cat loss and ALAE ratio 71.4 % 43.6 % 34.1 % 59.2 %
Total non-cat loss and ALAE ratio 70.3 % 45.3 % 55.5 % 60.0 %
Total Loss and ALAE ratio 73.5 % 71.8 % 62.5 % 72.5 %
ULAE ratio 6.2 % 7.4 % 8.1 % 6.7 %
Total Loss and LAE ratio 79.7 % 79.2 % 70.6 % 79.2 %
Expense ratio 27.6 % 32.2 % 36.8 % 29.6 %
Combined ratio 107.3 % 111.4 % 107.4 % 108.8 %
 
 

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

 
SAP Commercial Insurance Segment Results
(unaudited)
($ in millions)
    Small   Middle        
Three months ended Commercial Commercial Market Workers' Farm & Other
June 30, 2018 Auto Package Commercial Comp Ranch Commercial Total
 
Net written premiums $ 21.4 $ 31.6 $ 32.3 $ 17.6 $ 12.7 $ 5.2 $ 120.8
Net earned premiums 18.7 30.3 28.3 22.6 11.1 4.6 115.6
Losses and LAE incurred:
Cat loss and ALAE 0.6 4.5 3.8 — 1.7 — 10.6
Non-cat loss and ALAE
Prior accident years non-cat loss and ALAE (1.1 ) (4.2 ) 2.1 (3.6 ) (1.5 ) (1.3 ) (9.6 )
Current accident year non-cat loss and ALAE 11.0   18.6   15.7   13.9   6.4   1.7   67.3  
Total non-cat loss and ALAE 9.9   14.4   17.8   10.3   4.9   0.4   57.7  
Total Loss and ALAE 10.5 18.9 21.6 10.3 6.6 0.4 68.3
ULAE 1.1   1.7   1.5   1.5   0.7   0.3   6.8  
Total Loss and LAE 11.6 20.6 23.1 11.8 7.3 0.7 75.1
Underwriting expenses 9.5   13.9   12.3   6.4   5.4   1.8   49.3  
Net underwriting (loss) gain $ (2.4 ) $ (4.2 ) $ (7.1 ) $ 4.4   $ (1.6 ) $ 2.1   $ (8.8 )
 
Cat loss and ALAE ratio 2.9 % 14.8 % 13.5 % — % 14.8 % — % 9.1 %
Non-cat loss and ALAE ratio
Prior accident years non-cat loss and ALAE ratio (5.7 )% (14.0 )% 7.6 % (15.9 )% (13.8 )% (27.0 )% (8.3 )%
Current accident year non-cat loss and ALAE ratio 59.4 % 61.8 % 55.2 % 61.2 % 58.0 % 34.2 % 58.2 %
Total non-cat loss and ALAE ratio 53.7 % 47.8 % 62.8 % 45.3 % 44.2 % 7.2 % 49.9 %
Total Loss and ALAE ratio 56.6 % 62.6 % 76.3 % 45.3 % 59.0 % 7.2 % 59.0 %
ULAE ratio 5.9 % 5.7 % 5.5 % 7.2 % 6.3 % 5.4 % 6.0 %
Total Loss and LAE ratio 62.5 % 68.3 % 81.8 % 52.5 % 65.3 % 12.6 % 65.0 %
Expense ratio 44.0 % 43.9 % 38.0 % 36.1 % 42.4 % 36.4 % 40.7 %
Combined ratio 106.5 % 112.2 % 119.8 % 88.6 % 107.7 % 49.0 % 105.7 %
 
             

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

 
($ in millions)
Small

Middle

Three months ended Commercial Commercial

Market

Workers' Farm & Other
June 30, 2017 Auto Package Commercial Comp Ranch Commercial Total
 
Net written premiums $ 19.9 $ 31.8 $ 30.6 $ 19.6 $ 11.5 $ 3.8 $ 117.2
Net earned premiums 19.3 31.9 27.5 22.8 9.6 3.4 114.5
Losses and LAE incurred:
Cat loss and ALAE 0.3 5.4 4.0 — 1.3 — 11.0
Non-cat loss and ALAE
Prior accident years non-cat loss and ALAE (1.6 ) (3.0 ) (6.3 ) (2.8 ) (0.8 ) (1.1 ) (15.6 )
Current accident year non-cat loss and ALAE 12.1   18.9   14.5   15.8   7.6   1.8   70.7  
Total non-cat loss and ALAE 10.5   15.9   8.2   13.0   6.8   0.7   55.1  
Total Loss and ALAE 10.8 21.3 12.2 13.0 8.1 0.7 66.1
ULAE 1.0   1.7   1.0   1.4   0.7   0.3   6.1  
Total Loss and LAE 11.8 23.0 13.2 14.4 8.8 1.0 72.2
Underwriting expenses 8.0   13.5   10.7   6.7   4.2   1.8   44.9  
Net underwriting (loss) gain $ (0.5 ) $ (4.6 ) $ 3.6   $ 1.7   $ (3.4 ) $ 0.6   $ (2.6 )
 
Cat loss and ALAE ratio

 

1.6 %

 

16.9 %

 

14.6 %

 

— %

 

14.0 %

 

0.3 %

 

9.7 %
Non-cat loss and ALAE ratio
Prior accident years non-cat loss and ALAE ratio

 

(8.1 )%

 

(9.3 )%

 

(23.0 )%

 

(12.4 )%

 

(8.2 )%

 

(33.6 )%

 

(13.6 )%
Current accident year non-cat loss and ALAE ratio

 

62.4 %

 

58.8 %

 

52.7 %

 

69.5 %

 

79.0 %

 

56.1 %

 

61.7 %
Total non-cat loss and ALAE ratio

 

54.3 %

 

49.5 %

 

29.7 %

 

57.1 %

 

70.8 %

 

22.5 %

 

48.1 %
Total Loss and ALAE ratio

 

55.9 %

 

66.4 %

 

44.3 %

 

57.1 %

 

84.8 %

 

22.8 %

 

57.8 %
ULAE ratio

 

5.1 %

 

5.5 %

 

3.9 %

 

6.0 %

 

6.5 %

 

4.8 %

 

5.2 %
Total Loss and LAE ratio

 

61.0 %

 

71.9 %

 

48.2 %

 

63.1 %

 

91.3 %

 

27.6 %

 

63.0 %
Expense ratio

 

40.1 %

 

42.6 %

 

35.1 %

 

33.9 %

 

36.0 %

 

50.6 %

 

38.3 %
Combined ratio

 

101.1 %

 

114.5 %

 

83.3 %

 

97.0 %

 

127.3 %

 

78.2 %

 

101.3 %
 
             

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

 
($ in millions)
Small Middle
Commercial Commercial Market Workers' Farm & Other
Six months ended June 30, 2018 Auto Package Commercial Comp Ranch Commercial Total
 
Net written premiums $ 40.0 $ 62.0 $ 61.0 $ 42.0 $ 24.2 $ 9.7 $ 238.9
Net earned premiums 37.1 60.7 56.4 45.4 22.1 8.8 230.5
Losses and LAE incurred:
Cat loss and ALAE 0.6 7.7 5.3 — 1.6 — 15.2
Non-cat loss and ALAE
Prior accident years non-cat loss and ALAE (4.6 ) (4.7 ) (3.4 ) (5.9 ) (1.2 ) 0.5 (19.3 )
Current accident year non-cat loss and ALAE 23.4   36.8   37.2   29.0   10.6   3.7   140.7  
Total non-cat loss and ALAE 18.8   32.1   33.8   23.1   9.4   4.2   121.4  
Total Loss and ALAE 19.4 39.8 39.1 23.1 11.0 4.2 136.6
ULAE 2.3   3.0   3.0   3.8   1.0   0.6   13.7  
Total Loss and LAE 21.7 42.8 42.1 26.9 12.0 4.8 150.3
Underwriting expenses 17.6   27.7   23.6   14.4   10.2   3.8   97.3  
Net underwriting (loss) gain $ (2.2 ) $ (9.8 ) $ (9.3 ) $ 4.1   $ (0.1 ) $ 0.2   $ (17.1 )
 
Cat loss and ALAE ratio 1.5 % 12.7 % 9.4 % — % 7.2 % — % 6.6 %
Non-cat loss and ALAE ratio
Prior accident years non-cat loss and ALAE ratio (12.3 )% (7.8 )% (6.0 )% (12.9 )% (5.5 )% 5.6 % (8.4 )%
Current accident year non-cat loss and ALAE ratio 63.3 % 60.6 % 66.0 % 63.6 % 47.7 % 41.6 % 61.0 %
Total non-cat loss and ALAE ratio 51.0 % 52.8 % 60.0 % 50.7 % 42.2 % 47.2 % 52.6 %
Total Loss and ALAE ratio 52.5 % 65.5 % 69.4 % 50.7 % 49.4 % 47.2 % 59.2 %
ULAE ratio 6.1 % 5.0 % 5.4 % 8.6 % 4.8 % 6.2 % 6.0 %
Total Loss and LAE ratio 58.6 % 70.5 % 74.8 % 59.3 % 54.2 % 53.4 % 65.2 %
Expense ratio 43.9 % 44.7 % 38.8 % 34.3 % 42.1 % 39.4 % 40.7 %
Combined ratio 102.5 % 115.2 % 113.6 % 93.6 % 96.3 % 92.8 % 105.9 %
 
             

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

 
($ in millions)
Small Middle
Commercial Commercial Market Workers' Farm & Other
Six months ended June 30, 2017 Auto Package Commercial Comp Ranch Commercial Total
 
Net written premiums $ 38.3 $ 62.3 $ 56.4 $ 41.3 $ 21.4 $ 7.6 $ 227.3
Net earned premiums 38.8 63.2 54.5 44.3 19.0 7.7 227.5
Losses and LAE incurred:
Cat loss and ALAE 0.6 9.5 7.1 — 3.7 — 20.9
Non-cat loss and ALAE
Prior accident years non-cat loss and ALAE (3.1 ) (5.0 ) (5.3 ) (4.7 ) (0.8 ) (4.3 ) (23.2 )
Current accident year non-cat loss and ALAE 26.5   34.6   30.5   30.4   11.1   3.9   137.0  
Total non-cat loss and ALAE 23.4   29.6   25.2   25.7   10.3   (0.4 ) 113.8  
Total Loss and ALAE 24.0 39.1 32.3 25.7 14.0 (0.4 ) 134.7
ULAE 2.1   2.6   2.6   3.6   1.4   0.5   12.8  
Total Loss and LAE 26.1 41.7 34.9 29.3 15.4 0.1 147.5
Underwriting expenses 15.6   26.8   20.7   13.6   7.8   3.8   88.3  
Net underwriting (loss) gain $ (2.9 ) $ (5.3 ) $ (1.1 ) $ 1.4   $ (4.2 ) $ 3.8   $ (8.3 )
 
Cat loss and ALAE ratio 1.6 % 15.0 % 13.1 % — % 19.7 % 0.1 % 9.2 %
Non-cat loss and ALAE ratio
Prior accident years non-cat loss and ALAE ratio (8.0 )% (7.9 )% (9.7 )% (10.6 )% (4.3 )% (55.5 )% (10.2 )%
Current accident year non-cat loss and ALAE ratio 68.2 % 54.7 % 56.0 % 68.6 % 58.6 % 51.1 % 60.2 %
Total non-cat loss and ALAE ratio 60.2 % 46.8 % 46.3 % 58.0 % 54.3 % (4.4 )% 50.0 %
Total Loss and ALAE ratio 61.8 % 61.8 % 59.4 % 58.0 % 74.0 % (4.3 )% 59.2 %
ULAE ratio 5.6 % 4.1 % 4.8 % 8.1 % 6.8 % 4.8 % 5.6 %
Total Loss and LAE ratio 67.4 % 65.9 % 64.2 % 66.1 % 80.8 % 0.5 % 64.8 %
Expense ratio 40.6 % 43.0 % 36.7 % 32.9 % 36.3 % 51.2 % 38.8 %
Combined ratio 108.0 % 108.9 % 100.9 % 99.0 % 117.1 % 51.7 % 103.6 %
 
 

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

 
SAP Personal & Commercial Insurance Segment Results
($ in millions)
(unaudited)
  2Q 2018   2Q 2017   YTD 2018   YTD 20174
 
Net written premiums $ 305.7 $ 267.6 $ 585.5 $ 509.7
Net earned premiums 280.5 257.4 551.7 514.0
Losses and LAE incurred:
Cat loss and ALAE 37.7 24.5 47.5 56.6
Non-cat loss and ALAE
Prior accident years non-cat loss and ALAE (20.2 ) (15.7 ) (36.5 ) (21.0 )
Current accident year non-cat loss and ALAE 161.6   162.5   332.3   306.8  
Total non-cat loss and ALAE 141.4   146.8   295.8   285.8  
Total Loss and ALAE 179.1 171.3 343.3 342.4
ULAE 17.5   15.3   33.7   31.9  
Total Loss and LAE 196.6 186.6 377.0 374.3
Underwriting expenses 105.9   87.9   203.3   172.0  
Net underwriting loss $ (22.0 ) $ (17.1 ) $ (28.6 ) $ (32.2 )
 
Cat loss and ALAE ratio 13.4 % 9.5 % 8.6 % 11.0 %
Non-cat loss and ALAE ratio
Prior accident years non-cat loss and ALAE ratio (7.2 )% (6.1 )% (6.6 )% (4.1 )%
Current accident year non-cat loss and ALAE ratio 57.6 % 63.1 % 60.2 % 59.7 %
Total non-cat loss and ALAE ratio 50.4 % 57.0 % 53.6 % 55.6 %
Total Loss and ALAE ratio 63.8 % 66.5 % 62.2 % 66.6 %
ULAE ratio 6.3 % 6.0 % 6.1 % 6.2 %
Total Loss and LAE ratio 70.1 % 72.5 % 68.3 % 72.8 %
Expense ratio 34.6 % 32.8 % 34.7 % 33.7 %
Combined ratio 104.7 % 105.3 % 103.0 % 106.5 %
 
 

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

 
SAP Specialty Insurance Segment Results
(unaudited)
($ in millions)
Three months ended June 30, 2018   E&S Property   E&S Casualty   Programs   Total
 
Net written premiums $ (2.6 ) $ 5.7 $ (0.7 ) $ 2.4
Net earned premiums 2.1 19.6 5.3 27.0
Losses and LAE incurred:
Cat loss and ALAE (0.1 ) — (0.1 ) (0.2 )
Non-cat loss and ALAE
Prior accident years non-cat loss and ALAE 0.6 0.9 0.6 2.1
Current accident year non-cat loss and ALAE 0.2   13.8   4.0   18.0  
Total non-cat loss and ALAE 0.8   14.7   4.6   20.1  
Total Loss and ALAE 0.7 14.7 4.5 19.9
ULAE —   0.9   0.6   1.5  
Total Loss and LAE 0.7 15.6 5.1 21.4
Underwriting expenses 0.9   3.3   0.4   4.6  
Net underwriting gain (loss) $ 0.5   $ 0.7   $ (0.2 ) $ 1.0  
 
Cat loss and ALAE ratio (5.6 )% — % (1.4 )% (0.7 )%
Non-cat loss and ALAE ratio
Prior accident years non-cat loss and ALAE ratio 27.5 % 4.5 % 12.2 % 7.8 %
Current accident year non-cat loss and ALAE ratio 6.5 % 70.6 % 74.5 % 66.4 %
Total non-cat loss and ALAE ratio 34.0 % 75.1 % 86.7 % 74.2 %
Total Loss and ALAE ratio 28.4 % 75.1 % 85.3 % 73.5 %
ULAE ratio 3.1 % 4.6 % 10.2 % 5.6 %
Total Loss and LAE ratio 31.5 % 79.7 % 95.5 % 79.1 %
Expense ratio (34.0 )% 60.3 % (78.0 )% 192.2 %
Combined ratio (2.5 )%   140.0 %   17.5 %   271.3 %
                 
($ in millions)
Three months ended June 30, 2017 E&S Property E&S Casualty Programs Total
 
Net written premiums $ 17.3 $ 30.7 $ 25.7 $ 73.7
Net earned premiums 10.4 25.8 26.5 62.7
Losses and LAE incurred:
Cat loss and ALAE 0.3 — 0.4 0.7
Non-cat loss and ALAE
Prior accident years non-cat loss and ALAE 1.2 (0.1 ) (0.2 ) 0.9
Current accident year non-cat loss and ALAE 2.9   17.7   19.0   39.6  
Total non-cat loss and ALAE 4.1   17.6   18.8   40.5  
Total Loss and ALAE 4.4 17.6 19.2 41.2
ULAE 0.2   1.2   1.6   3.0  
Total Loss and LAE 4.6 18.8 20.8 44.2
Underwriting expenses 6.2   10.5   6.6   23.3  
Net underwriting loss $ (0.4 ) $ (3.5 ) $ (0.9 ) $ (4.8 )
 
Cat loss and ALAE ratio 2.4 % — % 1.4 % 1.0 %
Non-cat loss and ALAE ratio
Prior accident years non-cat loss and ALAE ratio 11.6 % (0.2 )% (0.6 )% 1.5 %
Current accident year non-cat loss and ALAE ratio 29.0 % 68.4 % 71.6 % 63.3 %
Total non-cat loss and ALAE ratio 40.6 % 68.2 % 71.0 % 64.8 %
Total Loss and ALAE ratio 43.0 % 68.2 % 72.4 % 65.8 %
ULAE ratio 1.1 % 4.8 % 5.8 % 4.6 %
Total Loss and LAE ratio 44.1 % 73.0 % 78.2 % 70.4 %
Expense ratio 36.4 % 34.2 % 26.0 % 31.8 %
Combined ratio 80.5 % 107.2 % 104.2 % 102.2 %
 
       

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

 
($ in millions)
Six months ended June 30, 2018 E&S Property E&S Casualty Programs Total
 
Net written premiums $ (5.3 ) $ 21.0 $ (0.9 ) $ 14.8
Net earned premiums 8.3 45.0 17.4 70.7
Losses and LAE incurred:
Cat loss and ALAE 0.1 — (0.3 ) (0.2 )
Non-cat loss and ALAE
Prior accident years non-cat loss and ALAE 0.4 2.8 (0.8 ) 2.4
Current accident year non-cat loss and ALAE 2.7   32.4   12.9   48.0  
Total non-cat loss and ALAE 3.1   35.2   12.1   50.4  
Total Loss and ALAE 3.2 35.2 11.8 50.2
ULAE 0.1   2.0   1.6   3.7  
Total Loss and LAE 3.3 37.2 13.4 53.9
Underwriting expenses 2.9   9.6   1.7   14.2  
Net underwriting gain (loss) $ 2.1   $ (1.8 ) $ 2.3   $ 2.6  
 
Cat loss and ALAE ratio 0.7 % — % (1.5 )% (0.3 )%
Non-cat loss and ALAE ratio
Prior accident years non-cat loss and ALAE ratio 4.0 % 6.3 % (4.4 )% 3.4 %
Current accident year non-cat loss and ALAE ratio 32.8 % 72.0 % 73.8 % 67.8 %
Total non-cat loss and ALAE ratio 36.8 % 78.3 % 69.4 % 71.2 %
Total Loss and ALAE ratio 37.5 % 78.3 % 67.9 % 70.9 %
ULAE ratio 1.7 % 4.3 % 9.2 % 5.2 %
Total Loss and LAE ratio 39.2 % 82.6 % 77.1 % 76.1 %
Expense ratio (54.5 )% 46.2 % (206.0 )% 96.2 %
Combined ratio (15.3 )%   128.8 %   (128.9 )%   172.3 %
                 
($ in millions)
Six months ended June 30, 2017 E&S Property4 E&S Casualty Programs4 Total4
 
Net written premiums $ 26.5 $ 57.4 $ 54.6 $ 138.5
Net earned premiums 21.4 49.1 53.7 124.2
Losses and LAE incurred:
Cat loss and ALAE 2.4 — 0.5 2.9
Non-cat loss and ALAE
Prior accident years non-cat loss and ALAE 1.6 (0.3 ) 0.1 1.4
Current accident year non-cat loss and ALAE 5.8   35.3   40.7   81.8  
Total non-cat loss and ALAE 7.4   35.0   40.8   83.2  
Total Loss and ALAE 9.8 35.0 41.3 86.1
ULAE (0.2 ) 2.2   3.0   5.0  
Total Loss and LAE 9.6 37.2 44.3 91.1
Underwriting expenses 11.0   20.1   15.0   46.1  
Net underwriting gain (loss) $ 0.8   $ (8.2 ) $ (5.6 ) $ (13.0 )
 
Cat loss and ALAE ratio 11.1 % — % 0.9 % 2.3 %
Non-cat loss and ALAE ratio
Prior accident years non-cat loss and ALAE ratio 7.7 % (0.5 )% 0.3 % 1.2 %
Current accident year non-cat loss and ALAE ratio 27.4 % 71.7 % 75.7 % 65.9 %
Total non-cat loss and ALAE ratio 35.1 % 71.2 % 76.0 % 67.1 %
Total Loss and ALAE ratio 46.2 % 71.2 % 76.9 % 69.4 %
ULAE ratio (1.2 )% 4.6 % 5.6 % 4.0 %
Total Loss and LAE ratio 45.0 % 75.8 % 82.5 % 73.4 %
Expense ratio 41.9 % 35.0 % 27.5 % 33.3 %
Combined ratio 86.9 % 110.8 % 110.0 % 106.7 %
 
 

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

 
SAP Insurance Segment Results
($ in millions)
(unaudited)   2Q 2018   2Q 2017   YTD 2018   YTD 20174
 
Net written premiums $ 308.1 $ 341.3 $ 600.3 $ 648.2
Net earned premiums 307.5 320.1 622.4 638.2
Losses and LAE incurred:
Cat loss and ALAE 37.5 25.2 47.3 59.5
Non-cat loss and ALAE
Prior accident years non-cat loss and ALAE (18.1 ) (14.8 ) (34.1 ) (19.6 )
Current accident year non-cat loss and ALAE 179.6   202.1   380.3   388.6  
Total non-cat loss and ALAE 161.5   187.3   346.2   369.0  
Total Loss and ALAE 199.0 212.5 393.4 428.5
ULAE 19.0   18.3   37.5   36.9  
Total Loss and LAE 218.0 230.8 430.9 465.4
Underwriting expenses 110.5   111.2   217.5   218.1  
Net underwriting loss $ (21.0 ) $ (21.9 ) $ (26.0 ) $ (45.3 )
 
Cat loss and ALAE ratio 12.2 % 7.9 % 7.6 % 9.3 %
Non-cat loss and ALAE ratio
Prior accident years non-cat loss and ALAE ratio (5.9 )% (4.6 )% (5.5 )% (3.1 )%
Current accident year non-cat loss and ALAE ratio 58.3 % 63.1 % 61.1 % 60.9 %
Total non-cat loss and ALAE ratio 52.4 % 58.5 % 55.6 % 57.8 %
Total Loss and ALAE ratio 64.6 % 66.4 % 63.2 % 67.1 %
ULAE ratio 6.3 % 5.7 % 6.0 % 5.8 %
Total Loss and LAE ratio 70.9 % 72.1 % 69.2 % 72.9 %
Expense ratio 35.8 % 32.6 % 36.2 % 33.7 %
Combined ratio 106.7 % 104.7 % 105.4 % 106.6 %
                 

The following table provides a reconciliation of our statutory underwriting results to GAAP consolidated income before federal income taxes for the three and six months ended June 30, 2018 and 2017:

 
($ millions)   2Q 2018   2Q 2017   YTD 2018   YTD 20174
Segment (loss) income before federal income taxes:
Insurance segments:
Personal insurance SAP underwriting loss $ (13.2 ) $ (14.5 ) $ (11.5 ) $ (24.0 )
Commercial insurance SAP underwriting loss (8.8 ) (2.6 ) (17.1 ) (8.3 )
Specialty insurance SAP underwriting gain (loss) 1.0   (4.8 ) 2.6   (13.0 )
Total insurance segments (21.0 ) (21.9 ) (26.0 ) (45.3 )
Investment operations segment:
Net investment income 21.5 19.1 41.4 37.8
Net investment gain 12.1   15.8   0.4   23.6  
Total investment operations segment 33.6 34.9 41.8 61.4
All other segments income 0.1   0.1   0.2   0.2  
Reconciling items:
GAAP adjustments 0.6 1.4 (3.4 ) (3.5 )
Interest expense on corporate debt (1.7 ) (1.5 ) (3.3 ) (2.9 )
Corporate expenses (3.9 ) (1.1 ) (4.8 ) (2.0 )
Total reconciling items (5.0 ) (1.2 ) (11.6 ) (8.4 )
Total consolidated income before federal income taxes $ 7.7   $ 11.9   $ 4.4   $ 7.9