State Auto Financial Corporation will see a dramatic drop in third-quarter catastrophe losses, but the insurer says it must increase reserves for prior periods due to adverse claims development in a commercial auto trucking program that the company canceled as April 1, 2012.

State Auto says it will increase its loss and loss expense reserves for prior periods by between $19.0 million and $21.0 million on program business written by its subsidiary, Risk Evaluation & Design LLC (RED).

Bob Restrepo, State Auto president and CEO says, “We began writing business with this unit in 2010 and acted as quickly as possible to address deteriorating results. In the past three months, claim development exceeded expectations requiring us to put aside reserves to address prior accident years and increase our loss estimates for 2012.”

Restrepo adds, “Nearly all the business underwritten by RED has been terminated, the management team has been replaced, and the unit has been restructured and integrated into our profitable Rockhill organization.”

Virtually all of the business written by RED over the past three years will be off of State Auto's books by the end of 2013, Restrepo says.

Columbus, Ohio-based State Auto reports better news regarding expected third-quarter pre-tax catastrophe losses. The company expects losses of between $6.5 million and $7.5 million stemming from six events, far below the $61 million in third-quarter catastrophe losses reported last year when Hurricane Irene and other weather events took their toll.

“We're pleased that third quarter results will reflect significantly lower levels of property catastrophe losses compared both to last year and our average five-year, third quarter catastrophe loss ratio of 10.6 percent,” says Restrepo. “At the same time, we're very disappointed in the performance of the program business underwritten by RED.”

Special Reports /

State Auto Sees RED over Subsidiary's Commercial Auto Trucking Losses

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