State Auto Financial Corp. has taken an aggressive stance onhomeowners insurance since 2009 — getting increased rate andreducing risk concentration in certain areas — but the company'schief executive says there is a long way to go before he will feelgood about the line, if he ever does.

State Auto President, Chairman and CEO Bob Restrepo said in aconference call with analysts that homeowners prices increasedalmost 23 percent for 2012. “And we plan for comparable increasesin 2013,” he added.

“Starting in 2009,” Restrepo said, “we've doubled homeownerrates, managed concentrations, and mitigated losses usingdeductibles and reinsurance. Policy-inforce count is also down 4.3percent for the year almost exclusively in the high-catastrophestates.”

And the moves are paying off, he noted. For the year, Restreposaid State Auto reported an ex-catastrophe loss ratio forhomeowners of 38.9 percent, a 12-point improvement compared to2011.

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

Restrepo said he expects the weather trends seen over the pastfive years to continue “for the foreseeable future, and we've bakedthat into our underwriting, our risk management and our pricingactions — [it's] very volatile.”

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

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

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

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

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 Sandycatastrophe losses and reserve strengthening for business writtenby subsidiary Risk Evaluation & Design LLC (RED).

State Auto's 2012 third-quarter results were impacted by reservestrengthening to program business written by RED. In the fourthquarter, Restrepo says most of the reserve strengthening was forthe second-largest RED program covering restaurants. “This programhas been terminated,” Restrepo said. “But we needed a quarter toassess ultimate loss costs. We reserve conservatively and now feelconfident that we have the terminated programs adequatelyreserved.”

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

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

For the year, State Auto reports net income of $10.7million, 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 2012fourth-quarter net income totaled $13 million, up from $10 millionfor the same period in 2011. For the year, net income was $38million compared to a net loss of $2.7 million in 2011.

Bruce G. Kelley, president and CEO, says, “Rate levels continuedto increase on all lines of business throughout the year, whileoverall policy-retention levels remained consistent with pastexperience.”

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

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 in2011.

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