Ohio | 000-19289 | 31-1324304 | ||
(State or other jurisdiction of incorporation or organization) | (Commission File Number) | (I.R.S. Employer Identification No.) | ||
518 East Broad Street, Columbus, Ohio | 43215-3976 | |
(Address of principal executive offices) | (Zip Code) | |
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Emerging growth company | ¨ |
Section 2. | Financial Information |
Item 2.02. | Results of Operations and Financial Condition. |
Section 9. | Financial Statements and Exhibits |
Item 9.01. | Financial Statements and Exhibits |
(c) | Exhibits. |
Exhibit No. | Description of Exhibit | ||
99.1 | Press release issued by State Auto Financial Corporation on March 4, 2019, regarding revision of previously disclosed financial information. |
STATE AUTO FINANCIAL CORPORATION | |
Date: March 4, 2019 | /s/ Steven E. English |
Senior Vice President and Chief Financial Officer |
Exhibit No. | Description of Exhibit | ||
99.1 |
![]() | ![]() |
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 | ) | 51.9 | 0.1 | 52.8 | |||||||||||
Net (loss) income | $ | (24.5 | ) | $ | (13.8 | ) | $ | 12.8 | $ | (17.8 | ) | |||||
(Loss) earnings per common share: | ||||||||||||||||
- basic | $ | (0.57 | ) | $ | (0.33 | ) | $ | 0.30 | $ | (0.42 | ) | |||||
- diluted | $ | (0.57 | ) | $ | (0.33 | ) | $ | 0.29 | $ | (0.42 | ) | |||||
Earnings (loss) per share from operations (A): | ||||||||||||||||
- basic | $ | 0.68 | $ | (0.65 | ) | $ | 1.21 | $ | (1.43 | ) | ||||||
- diluted | $ | 0.67 | $ | (0.65 | ) | $ | 1.20 | $ | (1.43 | ) | ||||||
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 | % | (2.1 | )% | ||||||||||||
Book value per share | $ | 18.91 | $ | 19.68 | ||||||||||||
Adjusted book value per share (B) | $ | 21.13 | $ | 19.59 | ||||||||||||
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 | ) | $ | (13.8 | ) | $ | 12.8 | $ | (17.8 | ) | |||||
Net investment (loss) gain, net of tax | (53.6 | ) | 13.8 | (39.3 | ) | 42.3 | ||||||||||
Net income (loss) from operations | $ | 29.1 | $ | (27.6 | ) | $ | 52.1 | $ | (60.1 | ) | ||||||
(B) Reconciliation of non-GAAP financial measure: | ||||||||||||||||
Adjusted stockholders' equity: | ||||||||||||||||
Total stockholders' equity | $ | 818.5 | $ | 835.0 | ||||||||||||
Accumulated other comprehensive (loss) income | (96.4 | ) | 3.8 | |||||||||||||
Adjusted stockholders equity | $ | 914.9 | $ | 831.2 | ||||||||||||
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 | 77.8 | 69.5 | ||||||
Property and equipment, net | 7.1 | 7.3 | ||||||
Total assets | $ | 2,895.9 | $ | 3,019.1 | ||||
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 | 83.0 | 99.3 | ||||||
Due to affiliate | 22.4 | 18.6 | ||||||
Other liabilities | 119.0 | 76.7 | ||||||
Total liabilities | 2,077.4 | 2,184.1 | ||||||
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 (loss) income | (96.4 | ) | 3.8 | |||||
Retained earnings | 712.7 | 653.2 | ||||||
Total stockholders’ equity | 818.5 | 835.0 | ||||||
Total liabilities and stockholders’ equity | $ | 2,895.9 | $ | 3,019.1 | ||||
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 | ) | 51.5 | 1.2 | 52.4 | |||||||||||
Federal income tax (benefit) expense | (8.0 | ) | 51.9 | 0.1 | 52.8 | |||||||||||
Net (loss) income | $ | (24.5 | ) | $ | (13.8 | ) | $ | 12.8 | $ | (17.8 | ) | |||||
(Loss) earnings per common share: | ||||||||||||||||
Basic | $ | (0.57 | ) | $ | (0.33 | ) | $ | 0.30 | $ | (0.42 | ) | |||||
Diluted | $ | (0.57 | ) | $ | (0.33 | ) | $ | 0.29 | $ | (0.42 | ) | |||||
Dividends paid per common share | $ | 0.10 | $ | 0.10 | $ | 0.40 | $ | 0.40 | ||||||||
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 | ) | $ | (13.8 | ) | $ | 12.8 | $ | (17.8 | ) | ||||
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 | (4.3 | ) | (1.5 | ) | (4.3 | ) | (1.5 | ) | |||||||
Reclassification adjustments for amortization to net (loss) income: | |||||||||||||||
Prior service credit | (1.5 | ) | (1.5 | ) | (6.3 | ) | (6.3 | ) | |||||||
Net actuarial loss | 3.3 | 3.2 | 13.2 | 12.5 | |||||||||||
Income tax expense (benefit) | 0.5 | (0.1 | ) | (0.6 | ) | (1.7 | ) | ||||||||
Total net unrecognized benefit plan obligations | (2.0 | ) | 0.1 | 2.0 | 3.0 | ||||||||||
Other comprehensive income (loss) | 9.7 | (10.9 | ) | (36.3 | ) | 6.2 | |||||||||
Comprehensive loss | $ | (14.8 | ) | $ | (24.7 | ) | $ | (23.5 | ) | $ | (11.6 | ) | |||
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 | $ | 3.8 | $ | (2.4 | ) | |||
Cumulative effect of change in accounting for equity securities and other invested assets and reclassification of stranded tax effects as of January 1, 2018 | (63.9 | ) | — | |||||
Adjusted beginning balance at January 1, 2018 | (60.1 | ) | — | |||||
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 | 2.0 | 3.0 | ||||||
Balance at end of year | (96.4 | ) | 3.8 | |||||
Retained earnings: | ||||||||
Balance at beginning of year | $ | 653.2 | $ | 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 | 63.9 | — | ||||||
Adjusted beginning balance at January 1, 2018 | 717.1 | — | ||||||
Net income (loss) | 12.8 | (17.8 | ) | |||||
Dividends declared (affiliates $10.4 and $10.4, respectively) | (17.2 | ) | (16.9 | ) | ||||
Balance at end of year | 712.7 | 653.2 | ||||||
Total stockholders’ equity at end of year | $ | 818.5 | $ | 835.0 | ||||
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 | $ | (17.8 | ) | |||
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 | (16.9 | ) | (14.8 | ) | ||||
Other liabilities and due to/from affiliate, net | 47.6 | 11.3 | ||||||
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 | 0.9 | — | ||||||
Federal income taxes | (0.8 | ) | 54.4 | |||||
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 | ||||
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 | 21.4 | 24.3 | ||||||||||||||
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 | 107.9 | 123.6 | ||||||||||||||
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 | $ | 77.8 | $ | 69.5 | ||||||||||||
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 | ) | 51.5 | 1.2 | 52.4 | |||||||||||
Total federal income tax (benefit) expense | (8.0 | ) | 51.9 | 0.1 | 52.8 | |||||||||||
Net (loss) income | $ | (24.5 | ) | $ | (13.8 | ) | $ | 12.8 | $ | (17.8 | ) | |||||
(A) Deferred federal income taxes for the three months and year ended December 31, 2017 include $43.5 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. | ||||||||||||||||
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end