State Auto Financial Corp., a super regional property/casualty insurance holding company, has disclosed two big financial developments: strengthened prior year loss expense reserves and an adverse development cover reinsurance deal.
Regarding the first item, State Auto said it strengthened its prior year loss and loss expense reserves by $72 million pre-tax, reflected in the 2014 fourth quarter, on program business written through Risk Evaluation & Design LLC, a wholly-owned subsidiary of its State Automobile Mutual Insurance Company arm. The increase comes from the terminated restaurant and commercial trucking programs, both of which are now in run-off.
State Auto said the reserve strengthening comes from revised estimates following completion of the previously disclosed ground up analysis of outstanding RED case reserves. State Auto Financial Corp. said its carried loss reserves as of Dec. 31 were approximately $127 million.
State Auto chairman, president and CEO Robert Restrepo, told Carrier Management at the October 2014 PCI Annual Meeting in Scottsdale, AZ that he expected State Auto reserve strengthening issues to be resolved by the end of 2014. The company would start 2015, he said, with “a good run rate of underwriting profitability, restored capital” and the achievement of diversification plans enabled through some targeted acquisitions.
Separately, the State Auto Group said it sealed an adverse development cover reinsurance deal with Munich Re, effective Dec. 31. The agreement gives $40 million of coverage for adverse development beyond carried reserves for the terminated Risk Evaluation & Design restaurant program, which represents nearly 60 percent of carried Risk Evaluation & Design reserves.
As of Jan. 6, the State Auto Group sealed a one-year property aggregate excess catastrophe reinsurance agreement covering property business underwritten by its personal insurance and business insurance segments.
Source: State Auto Financial Corp.