Midwest insurers State Auto Financial and EMC Insurance Group preannounced anticipated declines in second-quarter earnings last night, with catastrophe losses hitting both companies, and a program-related reserve charge impacting State Auto.
In its announcement, State Auto Financial Corporation said net income will likely come in between 4 cents and 7 cents per share for second-quarter 2014, as it takes an $11.4 million pre-tax hit for program business written through Risk Evaluation & Design, LLC (RED), a wholly owned subsidiary of State Automobile Mutual Insurance Company and also absorbs some $21.2 million in net catastrophe losses.
In last year’s second quarter, net income for State Auto Financial was 15 cents per share.
The boost in prior-year reserves relates primarily to two programs in runoff—a large restaurant program and a commercial auto trucking program.
In addition to the cat losses and reserve strengthening, the company expects to pay $4.4 million for severance costs related to the reorganization of the company’s information technology department. On the plus side, the company will record about $5.2 million of net realized gains on its investment portfolio when it releases second-quarter results officially on Thursday, July 31, 2014.
In Des Moines, Iowa, at EMC Insurance Group, the company said it expect to will report a second-quarter 2014 operating loss of approximately 2 cents per share, and a GAAP combined ratio of roughly 109.6, with $28.0 million in catastrophe losses from hail, wind and tornado damage from severe Midwest storms denting both figures.
Last year, second-quarter operating income was 47 cents per share and the combined ratio was 102.2, with catastrophe and storm losses totaling $21.4 million.
This year, second-quarter catastrophe and storm losses are expected to approximate $1.35 per share after tax, compared to $1.06 per share after tax in the second quarter of 2013.
In addition, large losses, (which the Company defines as losses greater than $500,000 for the EMC Insurance Companies pool, excluding catastrophe and storm losses) increased to approximately $9.9 million, or $0.48 per share after tax, compared to $6.5 million, or $0.33 per share after tax, in the second quarter of 2013.
“We generally expect an elevated level of catastrophe and storm losses in the second quarter due to our exposure to Midwest convective storms; however, this has been a somewhat unusual year due to the severe hail/wind damage events that have occurred,” stated President and Chief Executive Officer Bruce G. Kelley, in a statement.
The company also revised its operating income guidance for the year downward to a revised range of $2.00 to $2.25 per share—down from the previous guidance of $2.65 to $2.90 per share.
Source: State Auto Financial Corporation; EMC Insurance Group