State Auto Financial Corp. has taken an aggressive stance on homeowners insurance since 2009 — getting increased rate and reducing risk concentration in certain areas — but the company's chief executive says there is a long way to go before he will feel good about the line, if he ever does.

State Auto President, Chairman and CEO Bob Restrepo said in a conference call with analysts that homeowners prices increased almost 23 percent for 2012. “And we plan for comparable increases in 2013,” he added.

“Starting in 2009,” Restrepo said, “we've doubled homeowner rates, managed concentrations, and mitigated losses using deductibles and reinsurance. Policy-inforce count is also down 4.3 percent for the year almost exclusively in the high-catastrophe states.”

And the moves are paying off, he noted. For the year, Restrepo said State Auto reported an ex-catastrophe loss ratio for homeowners of 38.9 percent, a 12-point improvement compared to 2011.

But there is more work to be done. During a Q&A session at the end of the call, Restrepo said, “I'm not sure if in my lifetime I'll ever feel good about [homeowners] because it's so volatile.”

Restrepo said he expects the weather trends seen over the past five years to continue “for the foreseeable future, and we've baked that into our underwriting, our risk management and our pricing actions — [it's] very volatile.”

He continued, “So when I look at the future of homeowners, the first step is to make an underwriting profit, and we're darn close to that.”

He indicated that, barring a year like 2011, State Auto will likely make a homeowners underwriting profit in 2013.

“But that still doesn't mean we're making an acceptable risk-adjusted return in the line,” he added, “and we'll need at least another year of the kind of price increases that we've been getting over the past couple of years to kind of put us in hollering distance of what I think is an appropriate risk-adjusted return for the line.”

He said State Auto is targeting combined ratios in the low-90s to high-80s, “and we're probably at least 10 points from there,” he said.

For the 2012 fourth quarter, State Auto reports net income of $20.9 million, down from $99.3 million in 2011's fourth quarter. Improving loss ratios were “offset somewhat” by Superstorm Sandy catastrophe losses and reserve strengthening for business written by subsidiary Risk Evaluation & Design LLC (RED).

State Auto's 2012 third-quarter results were impacted by reserve strengthening to program business written by RED. In the fourth quarter, Restrepo says most of the reserve strengthening was for the second-largest RED program covering restaurants. “This program has been terminated,” Restrepo said. “But we needed a quarter to assess ultimate loss costs. We reserve conservatively and now feel confident that we have the terminated programs adequately reserved.”

All told, RED added about 6.3 points to the company's 101.7 combined ratio.

Sandy losses amounted to $7.3 million, the company reports.

For the year, State Auto reports net income of $10.7 million, compared to a net loss of $160.7 million in 2011.

EMC INSURANCE GROUP REPORTS NET-INCOME GAIN

Des Moines, Iowa-based EMC Insurance Group says its 2012 fourth-quarter net income totaled $13 million, up from $10 million for the same period in 2011. For the year, net income was $38 million compared to a net loss of $2.7 million in 2011.

Bruce G. Kelley, president and CEO, says, “Rate levels continued to increase on all lines of business throughout the year, while overall policy-retention levels remained consistent with past experience.”

Premiums earned in Q4 increased 4.9 percent to $117.3 million.

EMC says catastrophe losses for the quarter were $8.1 million, compared to $3.5 million in 2011's fourth quarter. For the year, EMC says cat losses were $53.5 million compared to $80.3 million in 2011.

The company says it experienced $258,000 of adverse development on prior years' reserves for the 2012 fourth quarter compared to favorable development of $11.4 million in 2011's fourth quarter.

Special Reports /

State Auto CEO Predicts Continued Weather Volatility; Will Seek More Rate

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