State Auto Financial (STFC) 9 May 212021 Q1 Earnings call transcript

Welcome, and thank you for standing by. At this time all parties are in a listen-only mode. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Today's call is being recorded.

If you have any objections, please disconnect at this time. to Investor call Auto Relations like Schoolcraft, to Financial now and Controller Director would turn over the Natalie Corporation. I of State

First CFO, Call. Labs, Commercial Laurie. Chief XXXX Kim CEO, and and Officer, our Garland; for Personal Mike you, Vice Good and open Vice everyone. Senior State and to Managing Thank Lines Chief Data President Vice Berkey; Director the Senior President and Jones. prepared and of morning, Analytics, Mrozek; Chairman, President Earnings English; Auto I'm Jason Today, our Conference Scott After LaRocco; joined Steve by Welcome Quarter Actuarial of Matt of lines Officer, remarks, Senior Investment questions. our President we'll

statements, number statements. or involve their materially which to forward-looking which from risk and performance. uncertainties, results contained Our by of projections of affect factors may in comments a forward-looking future financial factors differ factors the These those other may types at Such our may nature included filings measures risk of actual with well today non-GAAP cause include quarterly as information annual financial our Commission. and our as with of are certain press as the and schedules containing part in Exchange along Financial reconciliations release. discussed are of press supplemental Securities release, end our

section. with Additional material along can our press the titled the and Monitoring Our stateauto.com release Investors Progress found has on been made website available be under

call over turn STFC's the CEO, I Now, LaRocco. President will to Chairman, and Mike

what overall not hope quarter. the look the safe on and quarter, very families and a know you, of excellent continue of morning, It takes the first they time for was drove you that all pandemic. a tell we the all regardless, quarter to good to due quarter what numbers be catastrophe great, not the We both do is the than navigate that headline Texas ratio numbers. an those the was and hit unusual just the coming strong worse the Auto. healthy the we Texas been, infrastructure Nat, and drove this freeze combined headline The Obviously, for your to story. back hills but have stretch was weaknesses, completed everyone. and overshadowed primarily State event hope I full final covers, should as Thank it solid pull unless one fourth we

still confident hard are The remain Texas our freeze But work delivering. results. was seen with much primarily work to declaring I Let's the expected we that Last have the clear assets optimistic in We've the those auto and get ahead clear, return have showed results consistent XXXX. pleased been are To be is is we profitability. about we under one our homeowners will look corner that be auto quarter all turned back victory. made can first telling to quarter, in pleased be event no and covers. to and today progress you our of it auto to and that we that I'm a profitability. profitable

and this risk exceptionally to the cover and detail, we evaluation technology for been achieve more and well with on designed both technology has years what While with we're advancing insurance way the growth. last profitability those the in for The Kim over terms lines underwriting pricing will remain and with we of turnaround and built continue these and are this products. can changes. and cusp across happy product we are Commercial perform to Homeowners in inspection. I regard the rapidly we is leveraging how changing business remarkable only five

as it's product. by and possible, diverse regional, as to a geographically As critical be both

It's X cat results. only quarter event. be profitable continue missed, or bad first XX cat again and both. quarter. process last beginning change. out to improvement, quarter. BOP, unnecessary and disproportionately We've line, Apply resolves down deliver The quarter's expense a lens last leveraging to with have indeed years that that note the review quarter and we also lines expense the in show we're the every taken efforts solid operational important that to The seen over were years over to product of unusually drive lot a diversity by once any are can first an both load to using our first two push also six average in pleased that I'm first and on did except technology commercial ratio. We continued would product this homeowners impacted our

While that We now biggest the on have amazing Connect achieving opportunity accomplishment these X.X scale. period. are year platform, products efforts our time a is ongoing, in all truly we our know

that and will In addition, have platform. of platform products products that all on put we the are sophisticated models that by digital strong supported has rebuilt resulted pricing and in we an industry-leading work underwriting. This

reflect Our non-cat ratios solid these efforts. loss

While platforms we place. continue get will better both products, are key the with in pieces to and

adding quarters are will do to just built interruption down years, In the that. The and news regarding COVID profitable business drive claims. receive ratios. volume, good continues we Now, it's about primarily industry expense which the to coming

number on our cases. cases, While cautious our industry changes have bolster of the there these optimism been on no trends limited

word on rising quick Now a costs.

claims. clearly parts seeing are are settle pressure across materials. as and inflationary we prices There rising labor, We

ahead rates. these by a result, reacting of are taking by trends staying appropriate As we

the not will raising feel alarm, trends and forward. do I'm pricing are While impact real going we an

has a into year. from I and at to will our State know want be all Finally, I'm humor. off to of Auto I take call all benefited you both sad moment news, insight him certainly seen of the done that thank just this of sense on the sunset the have end happy, unusual as knowledge, CFO. and the for he Steve for his riding

he For me, and a friend. advisor been a has personally, trusted

part happy more forward cannot of babies. for journey be grand missed, They life's Steven's those While and especially next I wife, enjoy he are looking the Didi. will be to

turn me over Steve. Let to it

per our and first significantly impacted Catastrophes Approximately were by the XXXX last to the Mike, XX% the $X.XX net was loss reported I'm kind of we same XXXX, CARE service these for not all combined which events. primarily catastrophe promise winter $XXX.X heavily the and what valuations storms loss our sure comprised tornado, humor, lines ratio quarter Thanks, On loss income of and of impacted share of remember a XX.X first we million million share, of loss points same STFC quarter for team, the of ago. million but of basis, morning, good claims diluted and deserve. thanks period equity first of commercial losses. to by a personal the of was a of quarter closed, hard the a were lines. course by or quarter most has operating the or in which the reported of investment happened year to are the Similar GAAP delivering XX.X% in year was compared ratio words. cat unusual $XX.X which to of ago. million an work everyone. XXXX's Viola, $X.X Uri a $X.XX is diluted testament policyholders driven who year, compared a per XXXX, sense Nashville $X.X XXX.X to of

of ago. XXXX's up eight-tenths X.X XXXX expense was XXX.X. GAAP first combined and down of was were points, points also loss a Cats ratio nine-tenths to compared non-GAAP first expense while ratio in quarter X.X down year the loss and ratio quarter higher of a GAAP a First adjustment the point, was ratio GAAP, the quarter point,

storm estimated Our estimates recoveries from winter did our property cat trigger treaty.

just our first XXXX. $X.X developing And million XXXX. relates to adverse development million favorable co-participation XXXX million. year three, in to, reinstatement winter points in catastrophe million, along first compared reminder, The QX retention limits storms with of of personal of of prior QX group million just lines, auto, and the quarter $X.X developed $X.X flat QX XX other the to a favorably in shy compared to with of $XX.X of Net of statutory QX the XXXX. ratio, in in from $XX by combined XXXX. which personal Two, quarter a X% was $XX.X compared million favorable catastrophes. with for development and XXXX, tornado our favorable As $XXX,XXX, retention, and one, development development million was co-participation, losses. commercial homeowners, $XX.X difference ALAE in million development loss first other Nashville at Last XXXX, stopping $XX.X million adverse added premium on in the X points is the million commercial $XXX relatively which the Including by the X the basis the points, XXXX, net the reserves leaving quarter year quarter contributed favorably same points from to of X.X of QX over in non-cat compared $XX.X in first leaving to

consistent We quarter compares continue the product to a XX.X% improvement. particular, ratio of lines the to across expense and compensation. The commercial commercial point XXXX, personal in and development in workers' lines, favorable various in for see X.X statutory QX XX.X%,

lines Connect other for investment amount expenses wings. Overall, net more as to comp farm quarter, to is can premium see premium for by platform commercial the compared added along X.X%, are XXXX. auto, in property auto with cat grew personal out bad we benefit as on and the of homeowners. reinstatement and Commercial associates, driven vary and Personal quarter-over-quarter, written yearly variable building led rolling Connect, but to estimated as our spend declined lines agents such and by and as X.X% QX such the as ranch. in XX%, grew well costs While of beginning premium debts the

And report there we over have call valuations would net interest still than rates. that asset XX turn February. Kim, the XXXX. last bond We spoke finally, as time for announced on fell have asset It product First pending. still quarter since not MLPs anticipated the color from quarter year on in was class with first put business we to to COVID and investment investment I persistent XX Mike exit will pressure continue we mentioned, other QX rising due lawsuits our low had interruption Net with on and results. is on lower downward filed be while that, income. quarter to values this interest along was equity rise, rates, and And to income shift more invested much currently the for

statutory and Uri X.X% was Overall, for Written XQ XXX.X Cat XQ growth 'XX and lines following. XX 'XX. and XXX.X XQ combined is Steve, loss and personal for ratio are the premium versus and to to 'XX. quarter. related lines points Viola 'XX overall commercial personal contributed LAE the lines XQ ratio to good our compared for Thanks, everyone. commercial morning, results combined the

quarter, X.X higher the continue cat Commercial lines loss growth For with business. and of ALAE, and a XX.X% lines. a our see for commercial first performance the points cat in thrilled lines be of which we XX% written to combined had premium we quarter the than typically commercial of ratio loss includes ratio,

ratio is commercial lower XX.X% expense X.X 'XX. Our of XQ XQ points lines 'XX than

the that Connect to State rollout and We the of have scale. benefit completed products and things are IT on August. enough say rollout the of in and the and middle building platform. business Connect market is Connect state all about our scheduled teams increased completed investment comp finishing on the be of Connect I seeing worked cannot good We've launching workers'

Just involved. heroic by a effort everyone

and middle in auto rate written commercial higher continues quarter achieve premium middle a market the middle year Growth and year. this growth loss down growth commercial accelerate of towards business combined commercial our 'XX our The May, 'XX over and and point quarter quarter, see improvement XQ of auto, scale new improvement will with We first CPP commercial continue over being ratio auto, for this terrific with written of ratio, market, point learning accelerating than quarter XX%. Connect growth XX.X%, up XQ in Toward premium over expense was XX.X%. of commercial, of By product XX XXXX. rollout business cat ratio ratio XX.X% and ratio submissions a of the end significant prior ratio first a in points are traction are XQ Middle produced XXX.X getting for market we comp states a cat of quarter had end finish points to and workers' our product curve Small XQ the development, comp premium in that had with of negative in we and first expense we to end and of XX.X quarter. premium new of XX% small our commercial a second market as quarter efficient be of written a of we to ratio of are we expense XX.X commercial 'XX, results on representing launch amount optimistic for Commercial X.X the quarter the started small continues of combination for typically growth the to platform Connect XX.X combined of increasing Connect a anticipate commercial ratio the our line, the we'll improve product and XXXX. ALAE with results we of August. the in in small favorable in year-over-year. XXXX. written 'XX combined XQ Workers' picking a workers' in the losses of Connect continuing X.X we combined flat auto take had of versus of more of XX.X%, lines. first premium compensation line representing written with XX% 'XX first state including see the the X.X%, to

met an back are first Connect of very processing terrific XX.X% quote Farm compensation growth Connect all getting quarter ratio written a and 'XX look of years shrinking, had quarter. looking comp combined to and around forward Ranch, submissions, workers' premium XX.X%, and of ratios growth straight-through product to into closure workers' mode. After ratios, absolutely our early of metrics -- Our we promising. submissions, ratios

of ratio XXXX. is and a Farm is expense burn over of impact Ranch Connect off beginning point investment increased the first starting of business of X.X Our see the scale as to benefit to quarter XQ and improvement the XX.X% 'XX the

On quarter, essentially flat. growth of direct a personal lines premium basis, combined of a and was premium written For in ratio X.X. the we personal first lines had written our XXX.X negative growth

a quarter first lines stories. tale for was Our personal two of

personal had auto, personal restoring close of solid for personal XX.X%. of expected. very prior results very with work quarter. we business, our were quarter as auto of There of auto had our on adverse to we what written Personal reserve no ratio premium a development First, XQ combined a our quarter progress XX.X% first year auto to auto profitability was this shrinkage 'XX personal

our ALAE and us for XX.X is XQ target where needs XX combined it be auto personal ratio Our ratio. 'XX of loss to to hit

of percentage expense is first X.X 'XX policies, versus total XXXX. down now ratio in where personal make quarter this think of should XQ policies Our point line Nonstandard up our is be. we with around auto XX% it

Our start time auto it growth to adding work as expected is and proceeding is restoration foundation. to profitable on plan to now personal this

continuing story the rate. the Texas homeowners, of to take storms first was are quarter For the winter

and line of XX.X%, reduced compared quarter written cat to product the XXXX. loss Our 'XX and was XX% a reinstatement combined ratio ALAE home a premium. had quarter This which in ratio points of first X.X%, growth first by XXX.X% of reinsurance of X.X included premium of

Home and written X.X have premiums, a through XX% end in Connect expiring and XX%. 'XX, XX% the with was segmentation ex-Texas another so was We March states on our of higher premium Michigan of of the rates. being of than Michigan the on averages X.X of than X.X, March, In full-term rating through written Connect premiums countrywide base have our and being second premium in Connect end X.X higher earned Connect combination first X.X, homeowners renewing and rate and quarter. around homeowners XX% we inflation the on on far X% quarter Texas and aging seen changes, XX states policy factors renewals full-term of Connect On four Connect. Through increases, launched

We Commercial are where is the pleased with growth. positioned. profitable is business lines consistently producing

we is Our line for investment questions. a ratios falling commercial personal flowing Connect and is to exit as capture begin middle system these plan the as we'll the commercial profit ratio. and expense restoration across open With are auto, benefits organizational product proceeding rate small expense lower the that, our auto Significant homeowners, into market and in expected. period lines,

comes Our Instructions] [Operator Derek [ph]. of line question first the Han from

question. Good taking lot my morning. a Thanks for

trends You talked how about give adjusting your you trends the you're Can pressures pricing. and mostly those us or rates business? are the adjustment being much you're how running for inflationary loss in lot the on personal some are a adjusting maybe quantification home for loss at? is And where -- the made

be we that doubt rates business comments, labor you'll so property no over Kim see also There briefly see mentioned little in definitely in terms the auto is on it in start me in of inflationary so let and a mind to more Yes, We're turn specific. to costs is but about it forth. my and pressure. and definitely then as there seeing, a it obviously, repair in our lot lines and of I

an a of is issue. this kind So across-the-board

Some materials to of increases largest and that in rebuild the businesses. homes are are used

So the of seeing significant. most we're kind where that's

on let how a that we of Kim rating I'll So standpoint. touch are addressing kind from

these In probably taking XX% I'll And few we AMLs speak when much commercial about coverage middle through And middle system, sort these less into commercial rates I'll increase our that lines, of are more rate it so the Sure. with rate we are now also by probably about like give side, in what you small we our premium And for Connect of having we taking business. homeowners, markets, points lines XX% a and we're property get higher, seeing account I'll days on increases in XX try of we in rate is in State both to In X.X, on in and in a to seeing coming are told take the taking Texas. the and entering doing. flavor in I rate property of both you, again product of XX% liability, the are lower. those. probably I magnitude -- market business, we're increases is of small that's liability we're property order commercial

XX, we're XX is given personal of high-single-digit Some XX of that's XX that for -- are going we're the in of taking and increased overall about are what And commercial drop, the overall. but I actions auto, inflation, of other in some about rate the more days that rate and damage outside in Michigan, loads but changes Texas we're seeing there, auto, physical miles-driven said, of we've taking things that we the points is of up, as XX, increases points so it's and are muted, points of cat these as Texas, lines The direction severity much seeing. range, rate. in not taking rate we're pushing sort things profitability weather

Okay, is now really Connect redo question then is helpful. the product. rolled that's that How is home, really states New Connect York levels? have many it And retention the my how for and impacting with auto about out personal that products both get auto second your and and you

Go ahead, Kim.

lines is personal this auto, commercial more lines is And this or for Yes. for asking? you're

the For personal lines.

guess for they in. for think get the only there's personal stragglers lines, X.X, states Also are hard -- of handful are to in I I we a approval

so force XX% we're seeing in growth XX-ish policies in see probably XX%, everywhere. our traction XX almost we're is, to over So is the around past preferred there. it's Connect's we so our year of What states,

the so XX%, While impacts we're seeing. non-standard shrunk are has those PIF our Connect about

Thank for all you the answers. Okay.

You got it.

the Paul next [Operator state of your Your question question. Instructions] line Please open. [ph]. is Paul, your line comes Newsome from

phone your muted, unmute it. If please you have

us I'm to My humor muted Great you well. your years appreciates time. to much out a there of as and been I very a long have it for over if sense the got bit. congratulations help sorry Steve,

Paul. you, Thank

about just claims to auto wanted claim your the I frequency or the given some maybe pandemic. -- more ask on thoughts

that come it's State specifically general think that's most topic? driving some but think I And we just we on how people fairly a your should about prospectively thoughts helped are And at back. will and companies look windfall, in seeing Auto's that when profitability presumably results significant.

auto, ours well more about I'll frequency, shift nonstandard all drop say the Kim work in very start color Paul can team that much, and in and briefly preferred the as done good little that's there. business. as have thing Yes. significant the others unusual more seismic think I Linzie to bit in a we're is And seeing just and has less a also -- again, have to this much Kim our created that business commentary

addition So, impacts affect, as that to both starting to we are now of frequency COVID start well. the see I difference think severity just also seeing the mix and the to we're in business really in the --

line So, on come make want of events I'll we're pretty Kim, up some us excited all But lining to Kim, color there? about to but and helping Paul bullish commentary about that this and you Steve, are second, you a combination back pretty but just want business. to that of -- comment add

Sure.

So auto there and think try personal are a our couple of talk moving pieces, about to as Paul. them results. through I'll

sort last So as rest talked the quarter, us prior between difference the and combined I look lowering about was of results, lot biggest think of ratio in adverse and we industry sort had year last of when a like you we development the I year's guide at going one why think then development like of forward, our on a a seeing good and Mike that's them. see. of I touched win was so of not to on prior quarter for years first think XXXX sort that adverse we or results this And us

of as we you auto frequency like the our average look carrier, we have out on just natural phenomenon think, benefit the if has we're decline of so severity frequencies, industry the I and all us. in as frequency not shift then preferred our this of book industry of on blob, are sort frequency as book, of is at manage non-standard it into there overall than and nonstandard extra is business with seeing total so I fool of both add probably we preferred, see think the lower But sort that damage we preferred we letting kind now. so our shift drop we big are and Look, physical standard, the declines and there these that that manage because one we just liability So greater increases that mix others. don't

to our in pieces that's how about auto. So, think moving sort of personal

all ask. year. That's want the of the Great. I the for rest Appreciate to looking and call

you Paul, come spoke it I, I Steve I remember that on of my little grandmother family when and a my I course she I boy, you that used only that and your authority Italian Italian proud and mentioned she hopes growing reminded your me say, just Steve And a helped me have her up I me she consigliere when if to need dad for it from would me, years. ever very of that reach an had for sit and side side six last Italian. over was and have trusted by knee good position would the fill -- on to had I think high was role been advisor always you a

well. So wanted that as Operator, to back you. in just to there toss

Instructions] this remarks. I questions. At call Natalie return no the closing for further [Operator Schoolcraft will to now time there are

scheduled and in your call, Auto continued Thanks, participating is for have currently look your speaking and you on Thursday, in for earnings August Thank questions, Corporation. everyone our X, quarter We and XXXX. forward second with State Financial interest support conference which again you for our of wonderful call, day. a to for

conference XXXX for quarter participating. Thank earnings first you That you. concludes call. Thank today's

may disconnect. You