STATE AUTO FINANCIAL CORP – 10-Q – Management report and analysis of the financial position and operating results

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The term "State Auto Financial" as used below refers only to State Auto
Financial Corporation and the terms "our Company," "we," "us," and "our" as used
below refer to State Auto Financial Corporation and its consolidated
subsidiaries. The term "third quarter" as used below refers to the three months
ended September 30 for the time period then ended. For a glossary of terms for
State Auto Financial Corporation and its subsidiaries and affiliates and a
glossary of selected insurance and accounting terms, see the section entitled
"Important Defined Terms Used in this Form 10-K" included in our Annual Report
on Form 10-K for the year ended December 31, 2020 (the "2020 Form 10-K").
The discussion and analysis presented below relates to the material changes in
financial condition and results of operations for our consolidated balance
sheets as of September 30, 2021 and December 31, 2020, and for the consolidated
statements of income for the three and nine month periods ended September 30,
2021 and 2020. This discussion and analysis should be read together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Item 7 of the 2020 Form 10-K, and in particular the discussions
in those sections thereof entitled "Overview," "Executive Summary," and
"Critical Accounting Policies." Readers are encouraged to review the entire 2020
Form 10-K, as it includes information regarding our Company not discussed in
this Form 10-Q. This information will assist in your understanding of the
discussion of our current period financial results.
We have three reportable segments: personal insurance, commercial insurance, and
investment operations. The reportable insurance segments are business units
managed separately because of the differences in the type of customers they
serve or products they provide or services they offer. The insurance segments
market a broad line of property and casualty insurance products throughout the
United States through independent insurance agencies, which include retail
agents and wholesale brokers. The investment operations segment, managed by
Stateco, provides investment services. See "Personal and Commercial Insurance"
in Item 1 of the 2020 Form 10-K for more information about our insurance
segments. The results from our previously exited specialty insurance business
are disclosed as "specialty run-off." Financial information about our reportable
segments for 2021 is set forth in Note 12 of our condensed consolidated
financial statements included in Item 1 of this Form 10-Q.
Cautionary Notice Regarding Forward Looking Statements
The discussion and analysis presented below includes forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Forward-looking statements generally can
be identified by the use of forward-looking terminology such as "may," "will,"
"expect," "intend," "estimate," "anticipate," "project," "believe" or "continue"
or the negative thereof or variations thereon or similar terminology.
Forward-looking statements speak only as of the date the statements were made
available. Although we believe that the expectations reflected in
forward-looking statements have a reasonable basis, we can give no assurance
that these expectations will prove to be correct. Forward-looking statements are
subject to risks and uncertainties that could cause actual events or results to
differ materially from those expressed in or implied by the statements. In
addition, the forward-looking statements contained in the "Proposed Transactions
with Liberty Mutual" section are subject to additional risks and uncertainties,
such as (1) conditions to the closing of the Transactions may not be satisfied;
(2) regulatory approvals required for the Transactions may not be obtained, or
required regulatory approvals may delay the Transactions or result in the
imposition of conditions that could have a material adverse effect on LMHC,
State Auto Mutual or State Auto Financial or State Auto Financial or cause the
parties to abandon the Transactions; (3) uncertainty as to the timing of
completion of the Transactions; (4) the business of LMHC, State Auto Mutual or
State Auto Financial may suffer as a result of uncertainty surrounding the
Transactions; (5) the occurrence of any event, change or other circumstances
that could give rise to the termination of the Merger Agreement; (6) risks
related to disruption of management's attention from the ongoing business
operations of LMHC, State Auto Mutual or State Auto Financial due to the
Transactions; (7) the effect of the announcement of the Transactions on the
relationships of LMHC, State Auto Mutual or State Auto Financial with its
clients, operating results and business generally; (8) the outcome of any legal
proceedings to the extent initiated against LMHC, State Auto Mutual or State
Auto Financial following the announcement of the proposed Transactions; and (9)
LMHC, State Auto Mutual or State Auto Financial may be adversely affected by
other economic, business, and/or competitive factors as well as management's
response to any of the aforementioned factors. For a discussion of the most
significant risks and uncertainties that could cause our actual results to
differ materially from those projected, see "Risk Factors" in Item 1A of the
2020 Form 10-K, updated by Part II, Item 1A of this Form 10-Q. Except to the
limited extent required by applicable law, we undertake no obligation to update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
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               STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(majority-owned subsidiary of National Automobile Insurance Mutual)

PROPOSED TRANSACTION WITH LIBERTY MUTUAL
On July 12, 2021, State Auto Financial and State Auto Mutual, which owned
approximately 58.7% of State Auto Financial's issued and outstanding common
stock as of the date thereof, entered into an Agreement and Plan of Merger and
Combination (the "Merger Agreement") with Liberty Mutual Holding Company Inc.
("LMHC"), Pymatuning, Inc., a wholly-owned indirect subsidiary of LMHC ("Merger
Sub I"), and Andover, Inc., a wholly-owned direct subsidiary of LMHC ("Merger
Sub II").
The Merger Agreement provides for State Auto Mutual to reorganize through a
merger of Merger Sub II with and into State Auto Mutual, with State Auto Mutual
surviving such merger as an Ohio domiciled reorganized stock insurance
subsidiary of LMHC and LMHC granting equity rights in LMHC to each State Auto
Mutual member upon the extinguishment of such State Auto Mutual member's equity
rights in State Auto Mutual at the effective time of such merger. Simultaneously
with that transaction, the Merger Agreement provides for LMHC to acquire State
Auto Financial through a merger of Merger Sub I with and into State Auto
Financial, with State Auto Financial surviving such merger (the "Merger").
Subject to the terms and conditions set forth in the Merger Agreement, if the
transactions contemplated by the Merger Agreement, including the Merger
(collectively, the "Transactions") are consummated, at the effective time of the
Transactions: (i) the members of State Auto Mutual will become members of LMHC;
and (ii) each share of State Auto Financial's common stock issued and
outstanding immediately prior to the effective time (other than (1) treasury
shares owned by State Auto Financial and shares owned by LMHC and its
subsidiaries, (2) shares owned by State Auto Mutual or any of State Auto
Financial's subsidiaries, and (3) shares for which appraisal rights have been
properly exercised under Ohio law) will be converted into the right to receive
$52.00 in cash, without interest and less any applicable withholding taxes. The
Transactions are expected to close in 2022. As discussed below, the Merger
Agreement has been adopted by the shareholders of State Auto Financial. The
Transactions remain subject to approval by the members of State Auto Mutual, and
a membership meeting is scheduled for November 22, 2021 for the members of State
Auto Mutual to vote on whether to approve the Transactions. The Transactions are
also subject to receipt of required regulatory approvals and satisfaction of
other customary closing conditions. See Part II, Item 1A of this Form 10-Q, for
a discussion of certain risks related to the proposed Transactions.
A special meeting of shareholders (the "Special Meeting") of State Auto
Financial was held on September 29, 2021 to vote on the proposals identified in
State Auto Financial's definitive proxy statement for the Special Meeting, which
proxy statement was filed by State Auto Financial with the Securities and
Exchange Commission ("SEC") on August 27, 2021. At the Special Meeting, the
State Auto Financial shareholders voted to adopt the Merger Agreement, with
99.5% of the common shares of State Auto Financial voting (including
abstentions) in favor of such adoption.
For a detailed description of the Merger Agreement and the Transactions, please
see Item 1.01 of the Current Report on Form 8-K that we filed with the SEC on
July 12, 2021, and a copy of the Merger Agreement filed as Exhibit 2.1
therewith. For a detailed description of the results of the Special Meeting,
please see Item 5.07 of the Current Report on Form 8-K that we filed with the
SEC on September 30, 2021, and a copy of the press release filed as Exhibit 99.1
therewith.
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               STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(majority-owned subsidiary of National Automobile Insurance Mutual)

 POOLING ARRANGEMENT
The STFC Pooled Companies and the Mutual Pooled Companies participate in a quota
share reinsurance pooling arrangement referred to as the "Pooling Arrangement."
Under the Pooling Arrangement, State Auto Mutual assumes premiums, losses and
expenses from each of the Pooled Companies and in turn cedes to each of the
Pooled Companies a specified portion of premiums, losses and expenses based on
each of the Pooled Companies' respective pooling percentages. State Auto Mutual
then retains the balance of the pooled business.
The following table sets forth the participants and their participation
percentages in the Pooling Arrangement:
                STFC Pooled Companies:
                State Auto P&C                                  51.0  %
                Milbank                                         14.0
                SA Ohio                                            -
                Total STFC Pooled Companies                     65.0  %
                State Auto Mutual Pooled Companies:
                State Auto Mutual                               34.5  %
                SA Wisconsin                                       -
                Meridian Security                                  -
                Patrons Mutual                                   0.5
                RIC                                                -
                Plaza                                              -
                American Compensation                              -
                Bloomington Compensation                           -
                Total State Auto Mutual Pooled Companies        35.0  %


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               STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(majority-owned subsidiary of National Automobile Insurance Mutual)

RESULTS OF OPERATIONS

 The following table sets forth certain key performance indicators we use to
monitor our operations for the three and nine months ended September 30, 2021
and 2020:

($ millions, except by

 share amounts)              Three months ended September 30        Nine months ended September 30
                                 2021                 2020              2021                  2020
 GAAP Basis:
 Total revenues             $     391.1            $ 391.6       $      1,218.0           $ 1,041.2
 (Loss) income before
 federal income taxes       $     (25.7)           $  14.8       $        (15.9)          $   (87.6)
 Net (loss) income          $     (14.3)           $  11.6       $        (10.1)          $   (68.7)
 Basic (loss) earnings per
 share                      $     (0.32)           $  0.26       $        (0.23)          $   (1.57)
 Diluted (loss) earnings
 per share                  $     (0.32)           $  0.26       $        (0.23)          $   (1.57)
 Stockholders' equity                                            $        954.9           $   944.1
 Return on average equity
 (LTM)                                                                      7.5   %            (3.8) %
 Book value per share                                            $        21.49           $   21.57
 Debt to capital ratio                                                     11.3   %            11.4  %
 Cat loss and ALAE ratio           10.3   %           16.6  %              17.2   %            18.6  %
 Non-cat loss and LAE ratio        64.9   %           54.6  %              61.2   %            55.8  %
 Loss and LAE ratio                75.2   %           71.2  %              78.4   %            74.4  %
 Expense ratio                     30.1   %           34.8  %              31.0   %            34.9  %
 Combined ratio                   105.3   %          106.0  %             109.4   %           109.3  %
 Premium written growth            10.2   %            9.3  %               7.4   %            11.3  %
 Investment yield                   2.7   %            2.8  %               2.7   %             2.9  %

 SAP Basis:
 Cat loss and ALAE ratio           10.3   %           16.6  %              17.2   %            18.6  %
 Non-cat loss and ALAE
 ratio                             59.2   %           49.5  %              55.2   %            49.9  %
 ULAE ratio                         5.6   %            5.2  %               5.8   %             6.0  %
 Loss and LAE ratio                75.1   %           71.3  %              78.2   %            74.5  %
 Expense ratio                     28.4   %           33.8  %              29.6   %            34.1  %
 Combined ratio                   103.5   %          105.1  %             107.8   %           108.6  %


                                              Twelve months ended September 30
                                               2021                        2020
        Net premiums written to surplus        1.7                           1.7


Third Quarter and Year to Date 2021 Overview:
•For the three and nine months ended September 30, 2021, net investment loss was
$8.1 million and net investment gain was $56.8 million, respectively, which
included $6.7 million of losses recognized on equity securities and $49.7
million of gains recognized on equity securities, respectively.
•The SAP catastrophe loss and ALAE ratios for the three and nine months ended
September 30, 2021 were 10.3% and 17.2%, respectively, or $39.4 million and
$191.0 million, respectively. The 2021 third quarter was impacted by severe
weather events in the Midwest and Texas. The 2021 year to date was also impacted
by winter storms Uri and Viola in Texas, which added 5.6 points to the year to
date loss and ALAE ratio. Approximately 60% and 70% of the catastrophe losses
for the 2021 third quarter and year to date periods, respectively, occurred
within the homeowners line of business.
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               STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(majority-owned subsidiary of National Automobile Insurance Mutual)

•The SAP non-cat loss and ALAE ratios for the three and nine months ended
September 30, 2021 were 59.2% and 55.2%, respectively, or $226.1 million and
$611.3 million, respectively.
•The 2021 third quarter and year to date current accident year non-cat loss and
ALAE ratios were impacted by elevated claim frequency and severity in personal
auto and commercial auto. The 2021 year to date was also impacted by elevated
frequency and severity of property losses in homeowners.
•The 2021 third quarter and year to date non-catastrophe losses and ALAE
included 1.3 and 4.1 points, respectively, of favorable development relating to
prior years, or $5.0 million and $45.5 million, respectively. For the 2021 third
quarter and year to date, the commercial insurance segment contributed $9.2
million and $47.7 million, respectively, of favorable development.
•For the three and nine months ended September 30, 2021, we incurred the
following expenses, included in "other expenses", as a result of the pending
Merger:
•$9.3 million due to an increase in the valuation of the Director RSU awards as
a result of the increase in our stock price, and
•$2.9 million of legal and investment banking fees and expenses.
Third Quarter and Year to Date 2020 Overview:
COVID-19
Beginning in March 2020, the global COVID-19 pandemic impacted our results of
operations. For the 2020 third quarter and year to date, our results were
impacted as follows:
•For the three and nine months ended September 30, 2020, net investment gain was
$20.0 million and net investment loss was $39.3 million, respectively, including
$42.3 million and $50.9 million, respectively, of realized losses on equity
securities. During the third quarter, we completed the exit of our investments
in the Master Limited Partnership Exchange Traded Funds ("MLP ETF's") equity
security asset class and realized losses of $45.9 million and $56.5 million,
respectively, for the three and nine months ended September 30, 2020. The
decline in the fair value of the investments in the MLP ETFs during 2020 was due
to the market volatility caused by the COVID-19 pandemic. Net investment gain
(loss) for the 2020 third quarter and year to date included $62.5 million and
$8.2 million, respectively, of unrealized gains from equity securities and other
invested assets. The fair values of our equity securities and other invested
assets still held in our investment portfolio have mostly recovered from the
disruption in global financial markets caused by the COVID-19 pandemic.
•The impact on the current accident year non-cat loss and ALAE included:
•A decline in claim frequency in personal auto and commercial auto due to a
reduction in miles driven as a result of people working remotely and staying at
home more because of COVID-19 concerns,
•A decline in claim frequency in small commercial package, middle market
commercial and workers' compensation due to reduced business and employment
activity,
•Increased workers' compensation claims for businesses in the medical field such
as nursing homes and hospitals, due to employees being exposed to COVID-19 in
the course of their employment, and
•Increased legal defense costs in small commercial package and middle market
commercial due to litigation involving business interruption insurance claims.
Other Results
•The SAP catastrophe loss and ALAE ratios for the three and nine months ended
September 30, 2020 were 16.6% and 18.6%, respectively, or $58.7 million and
$191.0 million, respectively. The 2020 third quarter and year to date were
impacted by the Midwest derecho in August, with approximately 75% of the losses
occurring in Iowa, as well as widespread wind and hail events. Approximately 50%
of the catastrophe losses for the quarter were in our homeowners line of
business. The 2020 third quarter and year to date were also impacted by adverse
development of prior accident year losses of $12.4 million in E&S property
related to hurricane Irma. The 2020 year to date was also impacted by (i) a
first quarter wind and hail storm, including tornadoes, in Tennessee that
primarily impacted the middle market line of business, and (ii) widespread
second quarter wind and hail events in the South and Midwest that primarily
impacted the homeowners line of business.
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               STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(majority-owned subsidiary of National Automobile Insurance Mutual)

•The SAP non-cat loss and ALAE ratios for the three and nine months ended
September 30, 2020 were 49.5% and 49.9%, or $175.0 million and $510.6 million,
respectively.
•The 2020 third quarter and year to date current accident year non-cat loss and
ALAE ratios were impacted by (i) the COVID-19 pandemic discussed above, and (ii)
non-cat weather losses, primarily wind and hail. The 2020 year to date current
accident year non-cat loss and ALAE ratio was also impacted by an elevated level
of large losses, including fires.
•The 2020 third quarter and year to date non-catastrophe losses and ALAE
included 5.5 points and 3.1 points, respectively, of favorable development
relating to prior years, or $19.3 million and $31.8 million, respectively. For
the 2020 third quarter and year to date, the commercial insurance segment
contributed $26.5 million and $57.2 million, respectively, of favorable
development, which was partially offset by $8.1 million and $20.2 million,
respectively, of adverse development from the personal insurance segment. The
2020 year to date was also impacted by $5.2 million of adverse development from
specialty run-off primarily due to an adverse court decision relating to an E&S
casualty claim from 2016.
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               STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(majority-owned subsidiary of National Automobile Insurance Mutual)

Insurance Segments
We measure our top-line growth for our insurance segments based on net written
premiums, which provides us with an indication of how well we are doing in terms
of revenue growth before it is actually earned. Our policies provide a fixed
amount of coverage for a stated period of time, often referred to as the "policy
term." As such, our net written premiums are recognized as earned ratably over
the policy term. The unearned portion of written premiums, called unearned
premiums, is reflected on our balance sheet as a liability and represents our
obligation to provide coverage for the unexpired term of the policies.
Insurance industry regulators require our insurance subsidiaries to report their
financial condition and results of operations using SAP. We use SAP financial
results, along with industry standard financial measures determined on a SAP
basis and certain measures determined on a GAAP basis, to internally monitor the
performance of our insurance segments and reward our employees.
One of the more significant differences between GAAP and SAP is that SAP
requires all underwriting expenses to be expensed immediately and not deferred
over the same period that the premium is earned. In converting SAP underwriting
results to GAAP underwriting results, acquisition costs are deferred and
amortized over the periods the related written premiums are earned. For a
discussion of deferred acquisition costs, see "Critical Accounting Policies -
Deferred Acquisition Costs" section included in Item 7 of the 2020 Form 10-K.
The accounting for pension benefits also contributes to the difference between
our GAAP loss and expense ratios and our SAP loss and expense ratios. For a
discussion of our pension and postretirement benefit obligations, see the
"Critical Accounting Policies - Pension and Postretirement Benefit Obligations"
section included in Item 7 of the 2020 Form 10-K.
All references to financial measures or components thereof in this discussion
are calculated on a GAAP basis, unless otherwise noted.




















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               STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(majority-owned subsidiary of National Automobile Insurance Mutual)

The following tables set forth certain key performance indicators based on SAP
for our insurance segments for the three and nine months ended September 30,
2021 and 2020:
($ in millions)                        2021                    2020               2021          2020
Three months ended                  Personal &              Personal &
September 30                        Commercial              Commercial          Total(1)      Total(1)

Net written premiums           $         417.6         $         379.0         $ 417.7       $ 379.1
Net earned premiums                      381.6                   353.2           381.8         353.2
Losses and LAE incurred:
Cat loss and ALAE                         39.5                    46.4            39.4          58.7
Non-cat loss and ALAE
Prior accident years
non-cat loss and ALAE                     (4.9)                  (18.4)           (5.0)        (19.3)
Current accident year
non-cat loss and ALAE                    230.9                   194.1           231.1         194.3
Total non-cat loss and ALAE              226.0                   175.7           226.1         175.0
Total Loss and ALAE                      265.5                   222.1           265.5         233.7
ULAE                                      21.3                    19.6            21.4          18.3
Total Loss and LAE                       286.8                   241.7           286.9         252.0
Underwriting expenses                    118.5                   127.8           118.6         127.9
Net underwriting loss          $         (23.7)        $         (16.3)        $ (23.7)      $ (26.7)

Cat loss and ALAE ratio                   10.3    %               13.1    %       10.3  %       16.6  %
Non-cat loss and ALAE ratio
Prior accident years
non-cat loss and ALAE ratio               (1.3)   %               (5.2)   %       (1.3) %       (5.5) %
Current accident year
non-cat loss and ALAE ratio               60.5    %               55.1    %       60.5  %       55.0  %
Total non-cat loss and ALAE
ratio                                     59.2    %               49.9    %       59.2  %       49.5  %
Total Loss and ALAE ratio                 69.5    %               63.0    %       69.5  %       66.1  %
ULAE ratio                                 5.6    %                5.5    %        5.6  %        5.2  %
Total Loss and LAE ratio                  75.1    %               68.5    %       75.1  %       71.3  %
Expense ratio                             28.4    %               33.7    %       28.4  %       33.8  %
Combined ratio                           103.5    %              102.2    %      103.5  %      105.1  %

(1)Includes specialty
run-off


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               STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES
   (a majority-owned subsidiary of State Automobile Mutual Insurance Company)


($ in millions)                                    2021                 2020                2021               2020
                                                Personal &           Personal &
Nine Months Ended September 30                  Commercial           Commercial           Total(1)           Total(1)

Net written premiums                          $   1,190.0          $   1,107.3          $ 1,188.7          $ 1,107.2
Net earned premiums                               1,108.8              1,024.4            1,107.6            1,024.4
Losses and LAE incurred:
Cat loss and ALAE                                   192.8                178.6              191.0              191.0
Non-cat loss and ALAE
Prior accident years non-cat loss and
ALAE                                                (45.3)               (37.0)             (45.5)             (31.8)
Current accident year non-cat loss and
ALAE                                                656.6                542.1              656.8              542.4
Total non-cat loss and ALAE                         611.3                505.1              611.3              510.6
Total Loss and ALAE                                 804.1                683.7              802.3              701.6
ULAE                                                 64.2                 62.9               64.2               61.6
Total Loss and LAE                                  868.3                746.6              866.5              763.2
Underwriting expenses                               352.0                376.6              352.4              377.1
Net underwriting loss                         $    (111.5)         $     

(98.8) $ (111.3) $ (115.9)

Cat loss and ALAE ratio                              17.4  %              17.4  %            17.2  %            18.6  %
Non-cat loss and ALAE ratio
Prior accident years non-cat loss and
ALAE ratio                                           (4.1) %              (3.6) %            (4.1) %            (3.1) %
Current accident year non-cat loss and
ALAE ratio                                           59.2  %              53.0  %            59.3  %            53.0  %
Total non-cat loss and ALAE ratio                    55.1  %              49.4  %            55.2  %            49.9  %
Total Loss and ALAE ratio                            72.5  %              66.8  %            72.4  %            68.5  %
ULAE ratio                                            5.8  %               6.1  %             5.8  %             6.0  %
Total Loss and LAE ratio                             78.3  %              72.9  %            78.2  %            74.5  %
Expense ratio                                        29.6  %              34.0  %            29.6  %            34.1  %
Combined ratio                                      107.9  %             106.9  %           107.8  %           108.6  %

(1)Includes specialty run-off


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               STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(majority-owned subsidiary of National Automobile Insurance Mutual)

Personal Insurance Segment
The following tables set forth certain key performance indicators based on SAP
by major product line for our personal insurance segment for the three and nine
months ended September 30, 2021 and 2020:
Table 1
($ in millions)
Three months ended September 30,
2021                                    Personal Auto      Homeowners       Other Personal       Total

Net written premiums                   $       92.4       $    127.2       $       23.7        $ 243.3
Net earned premiums                            91.8            106.5               18.9          217.2
Losses and LAE incurred:
Cat loss and ALAE                               1.3             22.2                0.7           24.2
Non-cat loss and ALAE
Prior accident years non-cat loss
and ALAE                                        6.8             (2.5)                 -            4.3
Current accident year non-cat loss
and ALAE                                       67.2             55.8                9.4          132.4
Total non-cat loss and ALAE                    74.0             53.3                9.4          136.7
Total Loss and ALAE                            75.3             75.5               10.1          160.9
ULAE                                            7.9              5.3                1.0           14.2
Total Loss and LAE                             83.2             80.8               11.1          175.1
Underwriting expenses                          25.0             32.2                5.9           63.1
Net underwriting (loss) gain           $      (16.4)      $     (6.5)      

$ 1.9 $ (21.0)

Cat loss and ALAE ratio                         1.4  %          20.8  %             3.9   %       11.1  %
Non-cat loss and ALAE ratio
Prior accident years non-cat loss
and ALAE ratio                                  7.4  %          (2.4) %            (0.1)  %        2.0  %
Current accident year non-cat loss
and ALAE ratio                                 73.2  %          52.4  %            49.5   %       60.9  %
Total non-cat loss and ALAE ratio              80.6  %          50.0  %            49.4   %       62.9  %
Total Loss and ALAE ratio                      82.0  %          70.8  %            53.3   %       74.0  %
ULAE ratio                                      8.6  %           5.0  %             6.0   %        6.6  %
Total Loss and LAE ratio                       90.6  %          75.8  %            59.3   %       80.6  %
Expense ratio                                  27.1  %          25.4  %            24.7   %       26.0  %
Combined ratio                                117.7  %         101.2  %            84.0   %      106.6  %


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               STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(majority-owned subsidiary of National Automobile Insurance Mutual)

Table 2
($ in millions)
Three months ended September 30,
2020                                    Personal Auto      Homeowners       Other Personal       Total

Net written premiums                   $      101.4       $    111.4       $       17.4        $ 230.2
Net earned premiums                           103.0             92.5               13.3          208.8
Losses and LAE incurred:
Cat loss and ALAE                               1.9             28.1                2.9           32.9
Non-cat loss and ALAE
Prior accident years non-cat loss
and ALAE                                        8.0              0.7               (0.6)           8.1
Current accident year non-cat loss
and ALAE                                       58.2             50.7                4.8          113.7
Total non-cat loss and ALAE                    66.2             51.4                4.2          121.8
Total Loss and ALAE                            68.1             79.5                7.1          154.7
ULAE                                            7.4              6.8                0.2           14.4
Total Loss and LAE                             75.5             86.3                7.3          169.1
Underwriting expenses                          32.0             33.2                5.2           70.4
Net underwriting (loss) gain           $       (4.5)      $    (27.0)      

0.8 $ $ (30.7)

Cat loss and ALAE ratio                         1.9  %          30.4  %            21.5   %       15.8  %
Non-cat loss and ALAE ratio
Prior accident years non-cat loss
and ALAE ratio                                  7.8  %           0.7  %            (4.1)  %        3.9  %
Current accident year non-cat loss
and ALAE ratio                                 56.4  %          54.9  %            36.2   %       54.4  %
Total non-cat loss and ALAE ratio              64.2  %          55.6  %            32.1   %       58.3  %
Total Loss and ALAE ratio                      66.1  %          86.0  %            53.6   %       74.1  %
ULAE ratio                                      7.2  %           7.3  %             1.6   %        6.9  %
Total Loss and LAE ratio                       73.3  %          93.3  %            55.2   %       81.0  %
Expense ratio                                  31.4  %          29.8  %            29.4   %       30.5  %
Combined ratio                                104.7  %         123.1  %            84.6   %      111.5  %

















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               STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(majority-owned subsidiary of National Automobile Insurance Mutual)

Table 3

($ in millions)

Nine months ended September 30,

 2021                                  Personal Auto      Homeowners       

Other Personal Total

 Net written premiums                 $      273.5       $    329.6       $ 

61.9 $ 665.0

 Net earned premiums                         281.1            304.9         

52.1 638.1

Losses and LAE suffered:

 Cat loss and ALAE                             6.3            129.8         

19.8 155.9

Non-feline loss and ALAE

Previous accident years without loss of cat

 and ALAE                                      4.7             (2.1)               (0.2)           2.4

Current occurrence year without a cat

 loss and ALAE                               186.7            156.9         

26.9 370.5

 Total non-cat loss and ALAE                 191.4            154.8         

26.7 372.9

 Total Loss and ALAE                         197.7            284.6         

46.5 528.8

 ULAE                                         22.6             19.2                 2.9           44.7
 Total Loss and LAE                          220.3            303.8         

49.4 573.5

 Underwriting expenses                        76.3             87.0         

15.9 179.2

 Net underwriting loss                $      (15.5)      $    (85.9)      $ 

(13.2) $ (114.6)

 Cat loss and ALAE ratio                       2.3  %          42.6  %      

38.0% 24.4%

Non-cat loss and ALAE ratio

Previous accident years without loss of cat

 and ALAE ratio                                1.7  %          (0.7) %      

(0.4)% 0.4%

Current occurrence year without a cat

 loss and ALAE ratio                          66.4  %          51.4  %      

51.6% 58.1%

 Total non-cat loss and ALAE ratio            68.1  %          50.7  %             51.2  %        58.5  %
 Total Loss and ALAE ratio                    70.4  %          93.3  %             89.2  %        82.9  %
 ULAE ratio                                    8.0  %           6.3  %              5.8  %         7.0  %
 Total Loss and LAE ratio                     78.4  %          99.6  %             95.0  %        89.9  %
 Expense ratio                                27.9  %          26.4  %             25.6  %        26.9  %
 Combined ratio                              106.3  %         126.0  %            120.6  %       116.8  %

















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               STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(majority-owned subsidiary of National Automobile Insurance Mutual)

Table 4
($ in millions)
Nine months ended September 30,
2020                                    Personal Auto      Homeowners       Other Personal       Total

Net written premiums                   $      310.3       $    299.1       $       45.7        $ 655.1
Net earned premiums                           311.0            262.9               35.8          609.7
Losses and LAE incurred:
Cat loss and ALAE                               6.5             93.4               12.0          111.9
Non-cat loss and ALAE
Prior accident years non-cat loss
and ALAE                                       19.1              2.8               (1.7)          20.2
Current accident year non-cat loss
and ALAE                                      165.7            125.0               13.0          303.7
Total non-cat loss and ALAE                   184.8            127.8               11.3          323.9
Total Loss and ALAE                           191.3            221.2               23.3          435.8
ULAE                                           23.0             18.6                1.2           42.8
Total Loss and LAE                            214.3            239.8               24.5          478.6
Underwriting expenses                          98.5             89.7               13.7          201.9
Net underwriting loss                  $       (1.8)      $    (66.6)      

$ (2.4) $ (70.8)

Cat loss and ALAE ratio                         2.1  %          35.5  %            33.4   %       18.4  %
Non-cat loss and ALAE ratio
Prior accident years non-cat loss
and ALAE ratio                                  6.2  %           1.0  %            (4.5)  %        3.3  %
Current accident year non-cat loss
and ALAE ratio                                 53.2  %          47.6  %            36.2   %       49.8  %
Total non-cat loss and ALAE ratio              59.4  %          48.6  %            31.7   %       53.1  %
Total Loss and ALAE ratio                      61.5  %          84.1  %            65.1   %       71.5  %
ULAE ratio                                      7.4  %           7.1  %             3.4   %        7.0  %
Total Loss and LAE ratio                       68.9  %          91.2  %            68.5   %       78.5  %
Expense ratio                                  31.7  %          30.0  %            30.0   %       30.8  %
Combined ratio                                100.6  %         121.2  %            98.5   %      109.3  %


The personal insurance segment's net written premiums for the three and nine
months ended September 30, 2021 increased 5.7% and 1.5%, respectively, when
compared to the same 2020 periods (Tables 1 - 4). The 2021 third quarter and
year to date were impacted by (i) increased rates in homeowners, (ii) increased
rates and new business growth in other personal, and (iii) a decline in new
business in personal auto, primarily attributable to cumulative rate and
underwriting actions taken throughout 2020 and 2021 to address personal auto
profitability.
The personal insurance segment's SAP catastrophe loss and ALAE ratios for the
three and nine months ended September 30, 2021 improved 4.7 points and increased
6.0 points, respectively, when compared to the same 2020 periods (Tables 1 - 4).
The 2021 third quarter was impacted by higher frequency but lower severity of
CAT events when compared to the same 2020 period. However, on a year to date
basis, 2021 CAT events were both more frequent and more severe when compared to
the same 2020 period. The 2021 third quarter and year to date were impacted by
wind and hail events, primarily in the homeowners line of business. The 2021
year to date was also impacted by winter storms Uri and Viola in the first
quarter, which contributed 8.2 points to the cat loss and ALAE ratio. For the
2021 third quarter and year to date, approximately 50% and 80%, respectively, of
the reported catastrophe losses occurred in Texas. The 2020 third quarter and
year to date were impacted by (i) a Midwest derecho that contributed 4.7 points
and 1.6 points, respectively, to the loss ratios, and (ii) other wind and hail
events in the South and Midwest, with Texas contributing approximately 40% of
the reported year to date catastrophe losses.
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               STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(majority-owned subsidiary of National Automobile Insurance Mutual)

The personal insurance segment's SAP non-catastrophe loss and ALAE ratios for
the three and nine months ended September 30, 2021 increased 4.6 points and 5.4
points, respectively, when compared to the same 2020 periods (Tables 1 - 4).
The personal auto SAP non-catastrophe loss and ALAE ratios for the three and
nine months ended September 30, 2021 increased 16.4 points and 8.7 points,
respectively, when compared to the same 2020 periods. The 2021 increase is
attributable to the current accident year ratio, which was elevated due to an
increase in claims frequency and severity when compared to the same 2020
periods. Frequency was suppressed in 2020 due to fewer miles driven as a result
of shelter-in-place orders in response to the COVID-19 pandemic. Severity is
higher in the 2021 current accident year, driven by bodily injury coverage as
well as personal injury protection coverage in Michigan. Partially offsetting
the year to date increase in the 2021 non-catastrophe loss and ALAE ratios was
less adverse development of prior accident year losses. The 2021 third quarter
and year to date prior accident year development was attributable to (i) bodily
injury claims from multiple accident years and (ii) PIP claims in Michigan,
primarily from the 2020 and 2019 accident years. The 2020 third quarter and year
to date prior accident year adverse development was driven by higher than
expected severity for bodily injury claims from multiple accident years.
The homeowners SAP non-catastrophe loss and ALAE ratios for the three and nine
months ended September 30, 2021 improved 5.6 points and increased 2.1 points,
respectively, when compared to the same 2020 periods. The improvement in the
2021 third quarter ratio was due to favorable development of prior accident year
losses, primarily from the 2020 accident year, compared to adverse development
in the 2020 third quarter. The increase in the 2021 year to date ratio was due
to higher frequency and severity of both property and liability claims in the
current accident year. Partially offsetting the increase in the 2021
non-catastrophe loss and ALAE ratio was favorable development of prior accident
year losses, primarily from the 2020 accident year, compared to adverse
development in the same 2020 period. The 2020 year to date prior accident year
adverse development was primarily driven by higher severity on fourth quarter
2019 third-party liability and property claims that emerged during the first
quarter of 2020.
The other personal SAP non-catastrophe loss and ALAE ratios for the three and
nine months ended September 30, 2021 increased 17.3 points and 19.5 points,
respectively, when compared to the same 2020 periods, primarily driven by higher
severity of fire losses in the current accident year.
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               STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(majority-owned subsidiary of National Automobile Insurance Mutual)

Commercial Insurance Segment
The following tables set forth certain key performance indicators based on SAP
by major product line for our commercial insurance segment for the three and
nine months ended September 30, 2021 and 2020:
Table 5
($ in
millions)
Three months
ended
September 30,                           Small Commercial       Middle Market
2021               Commercial Auto          Package              Commercial
        Workers' Comp      Farm & Ranch      Other Commercial        Total

Net written
premiums          $         51.9       $       33.6          $       44.0          $       20.8       $      18.6       $          5.4         $ 174.3
Net earned
premiums                    48.7               33.8                  41.7                  15.9              19.0                  5.3           164.4
Losses and LAE
incurred:
Cat loss and
ALAE                        (0.2)               3.6                   9.2                     -               2.7                    -            15.3
Non-cat loss
and ALAE
Prior accident
years non-cat
loss and ALAE                3.7               (2.4)                 (1.2)                 (6.4)             (0.5)                (2.4)           (9.2)
Current
accident year
non-cat loss
and ALAE                    42.2               16.3                  17.8                  11.7               6.6                  3.9            98.5
Total non-cat
loss and ALAE               45.9               13.9                  16.6                   5.3               6.1                  1.5            89.3
Total Loss and
ALAE                        45.7               17.5                  25.8                   5.3               8.8                  1.5           104.6
ULAE                         2.9                1.2                   1.3                   1.0               0.6                  0.1             7.1
Total Loss and
LAE                         48.6               18.7                  27.1                   6.3               9.4                  1.6           111.7
Underwriting
expenses                    15.1               10.7                  14.7                   7.1               6.1                  1.7            55.4
Net
underwriting
(loss) gain       $        (15.0)      $        4.4          $       (0.1)         $        2.5       $       3.5       $          2.0         $  (2.7)

Cat loss and
ALAE ratio                  (0.4) %            10.7     %            22.0     %               -  %           14.1  %              (0.4)   %        9.3  %
Non-cat loss
and ALAE ratio
Prior accident
years non-cat
loss and ALAE
ratio                        7.6  %            (7.0)    %            (2.9)    %           (40.3) %           (2.4) %             (46.1)   %       (5.6) %
Current
accident year
non-cat loss
and ALAE ratio              86.6  %            48.0     %            42.9     %            73.9  %           35.5  %              72.8    %       60.0  %
Total non-cat
loss and ALAE
ratio                       94.2  %            41.0     %            40.0     %            33.6  %           33.1  %              26.7    %       54.4  %
Total Loss and
ALAE ratio                  93.8  %            51.7     %            62.0     %            33.6  %           47.2  %              26.3    %       63.7  %
ULAE ratio                   6.0  %             3.5     %             3.1     %             6.0  %            2.7  %               1.6    %        4.2  %
Total Loss and
LAE ratio                   99.8  %            55.2     %            65.1     %            39.6  %           49.9  %              27.9    %       67.9  %
Expense ratio               29.2  %            31.7     %            33.4     %            34.3  %           32.2  %              32.2    %       31.8  %
Combined ratio             129.0  %            86.9     %            98.5     %            73.9  %           82.1  %              60.1    %       99.7  %


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               STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES
   (a majority-owned subsidiary of State Automobile Mutual Insurance Company)


Table 6
($ in
millions)
Three months
ended
September 30,                           Small Commercial       Middle Market
2020               Commercial Auto          Package              Commercial
        Workers' Comp      Farm & Ranch      Other Commercial        Total

Net written
premiums          $         40.0       $       31.4          $       40.0          $       17.4       $      15.0       $          5.0         $ 148.8
Net earned
premiums                    35.6               31.4                  40.3                  17.5              14.5                  5.1           144.4
Losses and LAE
incurred:
Cat loss and
ALAE                         0.1                5.5                   4.7                     -               3.2                    -            13.5
Non-cat loss
and ALAE
Prior accident
years non-cat
loss and ALAE               (1.2)              (7.5)                 (6.3)                 (7.3)             (0.6)                (3.6)          (26.5)
Current
accident year
non-cat loss
and ALAE                    20.8               17.0                  20.1                  14.4               5.1                  3.0            80.4
Total non-cat
loss and ALAE               19.6                9.5                  13.8                   7.1               4.5                 (0.6)           53.9
Total Loss and
ALAE                        19.7               15.0                  18.5                   7.1               7.7                 (0.6)           67.4
ULAE                         1.7                0.5                   1.3                   1.1               0.5                  0.1             5.2
Total Loss and
LAE                         21.4               15.5                  19.8                   8.2               8.2                 (0.5)           72.6
Underwriting
expenses                    13.7               10.9                  16.4                   7.8               6.7                  1.9            57.4
Net
underwriting
gain (loss)       $          0.5       $        5.0          $        4.1          $        1.5       $      (0.4)      $          3.7         $  14.4

Cat loss and
ALAE ratio                   0.4  %            17.3     %            11.6     %               -  %           22.1  %                 -    %        9.3  %
Non-cat loss
and ALAE ratio
Prior accident
years non-cat
loss and ALAE
ratio                       (3.4) %           (23.8)    %           (15.5)    %           (41.6) %           (4.2) %             (72.6)   %      (18.3) %
Current
accident year
non-cat loss
and ALAE ratio              58.3  %            54.3     %            49.7     %            82.2  %           35.0  %              60.4    %       55.7  %
Total non-cat
loss and ALAE
ratio                       54.9  %            30.5     %            34.2     %            40.6  %           30.8  %             (12.2)   %       37.4  %
Total Loss and
ALAE ratio                  55.3  %            47.8     %            45.8     %            40.6  %           52.9  %             (12.2)   %       46.7  %
ULAE ratio                   4.8  %             1.5     %             3.3     %             6.4  %            3.4  %               1.9    %        3.6  %
Total Loss and
LAE ratio                   60.1  %            49.3     %            49.1     %            47.0  %           56.3  %             (10.3)   %       50.3  %
Expense ratio               34.2  %            34.7     %            41.0     %            45.1  %           45.1  %              38.6    %       38.6  %
Combined ratio              94.3  %            84.0     %            90.1     %            92.1  %          101.4  %              28.3    %       88.9  %















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               STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES
   (a majority-owned subsidiary of State Automobile Mutual Insurance Company)


Table 7
($ in
millions)
Nine months
ended
September 30,                          Small Commercial     Middle Market
2021               Commercial Auto         Package            Commercial   
    Workers' Comp      Farm & Ranch      Other Commercial       Total

Net written
premiums          $        160.6       $     103.5         $     133.7         $       48.6       $      61.0       $          17.6       $ 525.0
Net earned
premiums                   134.6              98.6               122.6                 45.6              53.3                  16.0         470.7
Losses and LAE
incurred:
Cat loss and
ALAE                         1.9              12.0                14.2                    -               8.8                     -          36.9
Non-cat loss
and ALAE
Prior accident
years non-cat
loss and ALAE                2.8              (6.9)              (14.7)               (21.8)             (2.0)                 (5.1)        (47.7)
Current
accident year
non-cat loss
and ALAE                    97.5              59.4                66.3                 33.6              21.9                   7.4         286.1
Total non-cat
loss and ALAE              100.3              52.5                51.6                 11.8              19.9                   2.3         238.4
Total Loss and
ALAE                       102.2              64.5                65.8                 11.8              28.7                   2.3         275.3
ULAE                         7.6               4.7                 2.8                  2.4               1.7                   0.3          19.5
Total Loss and
LAE                        109.8              69.2                68.6                 14.2              30.4                   2.6         294.8
Underwriting
expenses                    47.0              32.2                46.5                 20.1              21.1                   5.9         172.8
Net
underwriting
(loss) gain       $        (22.2)      $      (2.8)        $       7.5         $       11.3       $       1.8       $           7.5       $   3.1

Cat loss and
ALAE ratio                   1.4  %           12.2    %           11.6    %               -  %           16.5  %                0.1  %        7.8  %
Non-cat loss
and ALAE ratio
Prior accident
years non-cat
loss and ALAE
ratio                        2.1  %           (7.0)   %          (12.0)   %           (47.8) %           (3.7) %              (32.1) %      (10.1) %
Current
accident year
non-cat loss
and ALAE ratio              72.4  %           60.2    %           54.1    %            73.8  %           41.1  %               46.1  %       60.8  %
Total non-cat
loss and
ALAE ratio                  74.5  %           53.2    %           42.1    %            26.0  %           37.4  %               14.0  %       50.7  %
Total Loss and
ALAE ratio                  75.9  %           65.4    %           53.7    %            26.0  %           53.9  %               14.1  %       58.5  %
ULAE ratio                   5.6  %            4.7    %            2.3    %             5.2  %            3.1  %                1.7  %        4.1  %
Total Loss and
LAE ratio                   81.5  %           70.1    %           56.0    %            31.2  %           57.0  %               15.8  %       62.6  %
Expense ratio               29.3  %           31.1    %           34.7    %            41.4  %           34.7  %               33.5  %       32.9  %
Combined ratio             110.8  %          101.2    %           90.7    %            72.6  %           91.7  %               49.3  %       95.5  %















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               STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES
   (a majority-owned subsidiary of State Automobile Mutual Insurance Company)


Table 8
($ in
millions)
Nine months
ended
September 30,                           Small Commercial      Middle Market
2020               Commercial Auto          Package             Commercial 
      Workers' Comp      Farm & Ranch      Other Commercial       Total

Net written
premiums          $        117.8       $       95.8          $     126.8         $       49.2       $      47.3       $          15.3       $ 452.2
Net earned
premiums                    96.2               92.8                116.0                 54.4              40.8                  14.5         414.7
Losses and LAE
incurred:
Cat loss and
ALAE                         1.1               21.0                 35.7                    -               8.7                   0.2          66.7
Non-cat loss
and ALAE
Prior accident
years non-cat
loss and ALAE               (1.5)             (16.5)               (14.3)               (16.1)             (1.7)                 (7.1)        (57.2)
Current
accident year
non-cat loss
and ALAE                    52.4               53.3                 69.6                 40.6              15.2                   7.3         238.4
Total non-cat
loss and ALAE               50.9               36.8                 55.3                 24.5              13.5                   0.2         181.2
Total Loss and
ALAE                        52.0               57.8                 91.0                 24.5              22.2                   0.4         247.9
ULAE                         4.9                4.2                  4.5                  4.5               1.6                   0.4          20.1
Total Loss and
LAE                         56.9               62.0                 95.5                 29.0              23.8                   0.8         268.0
Underwriting
expenses                    40.1               34.0                 50.8                 22.7              21.1                   6.0         174.7
Net
underwriting
(loss) gain       $         (0.8)      $       (3.2)         $     (30.3)        $        2.7       $      (4.1)      $           7.7       $ (28.0)

Cat loss and
ALAE ratio                   1.2  %            22.6     %           30.7    %               -  %           21.3  %                1.2  %       16.1  %
Non-cat loss
and ALAE ratio
Prior accident
years non-cat
loss and ALAE
ratio                       (1.5) %           (17.8)    %          (12.3)   %           (29.6) %           (4.1) %              (49.3) %      (13.8) %
Current
accident year
non-cat loss
and ALAE ratio              54.3  %            57.5     %           60.1    %            74.6  %           37.3  %               50.7  %       57.4  %
Total non-cat
loss and
ALAE ratio                  52.8  %            39.7     %           47.8    %            45.0  %           33.2  %                1.4  %       43.6  %
Total Loss and
ALAE ratio                  54.0  %            62.3     %           78.5    %            45.0  %           54.5  %                2.6  %       59.7  %
ULAE ratio                   5.1  %             4.5     %            3.9    %             8.4  %            3.9  %                2.6  %        4.9  %
Total Loss and
LAE ratio                   59.1  %            66.8     %           82.4    %            53.4  %           58.4  %                5.2  %       64.6  %
Expense ratio               34.1  %            35.5     %           40.0    %            46.2  %           44.6  %               39.3  %       38.6  %
Combined ratio              93.2  %           102.3     %          122.4    %            99.6  %          103.0  %               44.5  %      103.2  %


Commercial auto and small commercial package new business has been written on
State Auto Connect since 2018. Our farm and ranch product launched on State Auto
Connect during the second quarter of 2020 and is now live in 29 states. Nine of
the 29 states are states in which we had not previously written policies for
farm & ranch products. Our middle market commercial product launched on State
Auto Connect in March 2020 and is currently live in 30 states, with the last
state having been launched in April 2021. Finally, our workers' compensation
product launched on State Auto Connect in the fourth quarter of 2020 and is
currently live in 36 states and Washington D.C. after completing the launch in
the 2021 third quarter.
The commercial insurance segment's net written premiums for the three and nine
months ended September 30, 2021, increased 17.1 points and 16.1 points,
respectively, when compared to the same 2020 periods (Tables 5 - 8). The third
quarter and year to date was impacted by new business growth and rate increases
in commercial auto and farm & ranch. The third quarter increase was also
impacted by rate increases in middle market commercial and new business growth
in workers' compensation attributable to its launch on State Auto Connect.
The commercial insurance segment's SAP catastrophe loss and ALAE ratios for the
three and nine months ended September 30, 2021 was flat and improved 8.3 points,
respectively, when compared to the same 2020 periods (Tables 5 - 8). For the
2021 year to date, the number of catastrophe events increased compared to 2020,
but the 2021 catastrophe events were less severe. The 2021 year to date was
primarily impacted by winter storms Uri and Viola in the first quarter, which
contributed 2.1 points to the loss and ALAE ratio. Approximately 80% of the 2021
losses occurred in Texas and the Midwest. The 2020 year to date was impacted by
(i) a severe wind and hail storm, including tornadoes, in Tennessee, which
contributed 5.1 points to the year to date cat loss and ALAE ratio, of which 3.7
points were from three large losses in Nashville, (ii) property losses
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               STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(majority-owned subsidiary of National Automobile Insurance Mutual)

resulting from the civil unrest which added 1.5 points to the cat loss and LAE
ratios, (iii) and the Midwest derecho mentioned above, which added 1.5 points to
the cat loss and ALAE ratios.
The commercial auto SAP non-catastrophe loss and ALAE ratios for the three and
nine months ended September 30, 2021 increased 39.3 points and 21.7 points,
respectively, when compared to the same 2020 periods, due to an increase in the
current accident year ratios. The 2021 increase in the current accident year
ratios was primarily due to an increase in the frequency and severity of bodily
injury claims. Also, 2020 experienced lower frequency attributable to fewer
miles driven as a result of shelter-in-place orders in response to the COVID-19
pandemic. The 2021 third quarter and year to date were also impacted by adverse
development of prior accident year losses, primarily due to higher than
anticipated severity from bodily injury claims from multiple accident years,
compared to favorable development of prior accident year losses in the same 2020
periods.
The small commercial package SAP non-catastrophe loss and ALAE ratios for the
three and nine months ended September 30, 2021 increased 10.5 points and 13.5
points, respectively, when compared to the same 2020 periods, primarily due to
less favorable development of prior accident year losses. The 2021 favorable
development was primarily attributable to lower than anticipated bodily injury
severity from accident years 2019 and prior. The 2020 favorable development of
prior accident year losses was driven by lower than expected bodily injury
severity from multiple prior accident years. The 2021 third quarter current
accident year ratio improved when compared to the same 2020 period, due to lower
severity of property losses. The 2021 year to date current accident year ratio
increased when compared to the same 2020 period, due to higher severity of
property losses from the first half of the year, including a large fire loss
that added 2.5 points to the year to date non-cat loss ratio. The 2020 third
quarter and year to date current accident year ratios were impacted by a decline
in claim frequency as a result of reduced business activity in response to
COVID-19. The 2020 year to date current accident year was also impacted by
increased COVID-19 related legal defense costs, which added 2.1 points to the
year to date non-cat loss ratio.
The middle market commercial SAP non-catastrophe loss and ALAE ratios for the
three and nine months ended September 30, 2021 increased 5.8 points and improved
5.7 points, respectively, when compared to the same 2020 periods. The third
quarter increase was due to less favorable development of prior accident year
losses when compared to the same 2020 period. The 2021 year to date favorable
development was primarily attributable to (i) bodily injury claims from multiple
accident years and on (ii) fire claims from the 2020 accident year. The 2020
third quarter and year to date favorable development of prior accident year
losses was primarily attributable to lower than expected bodily injury severity
from multiple accident years. The 2021 third quarter and year to date non-cat
loss ratios were also impacted by improvement in the current accident year,
primarily due to lower claim frequency of both bodily injury and property damage
claims.
The workers' compensation SAP non-catastrophe loss and ALAE ratios for the three
and nine months ended September 30, 2021 improved 7.0 points and 19.0 points,
respectively, when compared to the same 2020 periods. The 2021 third quarter
improvement was due to an improvement in the current accident year ratio when
compared to the same 2020 period, which was impacted by (i) a large loss that
added 10.0 points to the non-cat loss ratio, and (ii) increased claims for
businesses in the medical field (e.g. nursing homes, hospitals) due to the
COVID-19 pandemic, which added 3.9 points to the non-cat loss ratio. Partially
offsetting the 2021 improvement in the third quarter current accident year ratio
were two large losses that added 15.9 points to the third quarter non-cat loss
ratio. The 2021 year to date improvement was primarily due to more favorable
development of prior accident year losses when compared to the same 2020 period.
The 2021 favorable development was across multiple accident years. The 2021 year
to date current accident year ratio was consistent with the same 2020 period,
which was impacted by (i) the COVID-19 pandemic mentioned above that added 6.3
points to the non-cat loss ratio and (ii) the 2020 third quarter large loss
mentioned above that added 3.2 points to the non-cat loss ratio. Mostly
offsetting the 2021 year to date improvement in the current accident year ratio
were four large losses that added 11.4 points to the year to date non-cat loss
ratio.
The farm & ranch SAP non-catastrophe loss and ALAE ratio for the nine months
ended September 30, 2021 increased 4.2 points when compared to the same 2020
period, primarily due to higher claim frequency in the current accident year.
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               STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(majority-owned subsidiary of National Automobile Insurance Mutual)

Losses and LAE Development
Losses and loss expenses represent the combined estimated ultimate liability for
claims occurring in a period, along with any change in the estimated ultimate
liability for claims occurring in prior periods.
The following table sets forth a tabular presentation of the development of the
prior accident years' ultimate liability by product for the three and nine
months ended September 30, 2021 and 2020:
  ($ millions)            Three months ended September 30                   

Nine months ended September 30

                           2021             2020        Change              2021               2020        $ Change
                          (Favorable)/Adverse                              (Favorable)/Adverse
  Non-cat loss
  and ALAE:
  Personal
  Insurance
  Segment:
  Personal Auto     $     6.8             $   8.0      $ (1.2)     $       4.7               $  19.1      $  (14.4)
  Homeowners             (2.5)                0.7        (3.2)            (2.1)                  2.8          (4.9)
  Other Personal            -                (0.6)        0.6             (0.2)                 (1.7)          1.5
  Total Personal
  Insurance
  Segment                 4.3                 8.1        (3.8)             2.4                  20.2         (17.8)

  Commercial
  Insurance
  Segment:
  Commercial
  Auto                    3.7                (1.2)        4.9              2.8                  (1.5)          4.3
  Small
  Commercial
  Package                (2.4)               (7.5)        5.1             (6.9)                (16.5)          9.6
  Middle Market
  Commercial             (1.2)               (6.3)        5.1            (14.7)                (14.3)         (0.4)
  Workers'
  Compensation           (6.4)               (7.3)        0.9            (21.8)                (16.1)         (5.7)
  Farm & Ranch           (0.5)               (0.6)        0.1             (2.0)                 (1.7)         (0.3)
  Other
  Commercial             (2.4)               (3.6)        1.2             (5.1)                 (7.1)          2.0
  Total
  Commercial
  Insurance
  Segment                (9.2)              (26.5)       17.3            (47.7)                (57.2)          9.5

  Specialty
  run-off                (0.1)               (0.9)        0.8             (0.2)                  5.2          (5.4)
  Cat Loss and
  ALAE                    5.3                11.6        (6.3)             6.5                  12.8          (6.3)
  ULAE                    0.8                (2.3)        3.1             (3.4)                  1.4          (4.8)
  Total             $     1.1             $ (10.0)     $ 11.1      $     (42.4)              $ (17.6)     $  (24.8)

For more information, refer to the sections “Personal Insurance Segment” and “
Discussions on the insurance segment “included in this point 2.

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               STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(majority-owned subsidiary of National Automobile Insurance Mutual)

Losses and loss expenses payable
The following table sets forth losses and loss expenses payable by major product
at September 30, 2021 and December 31, 2020:

                                             September 30,
($ millions)                                     2021           December 31, 2020     $ Change
Personal Insurance Segment:
Personal Auto                              $         187.3      $         174.4      $    12.9
Homeowners                                           117.0                 90.4           26.6
Other Personal                                        23.2                 15.8            7.4
Total Personal Insurance Segment                     327.5                280.6           46.9
Commercial Insurance Segment:
Commercial Auto                                      132.4                 93.8           38.6
Small Commercial Package                              97.4                 95.9            1.5
Middle Market Commercial                             153.5                162.2           (8.7)
Workers' Compensation                                153.0                176.4          (23.4)
Farm & Ranch                                          21.9                 18.3            3.6
Other Commercial                                      26.0                 25.6            0.4
Total Commercial Insurance Segment                   584.2                572.2           12.0
Specialty run-off:
E&S Property                                           7.6                 24.3          (16.7)
E&S Casualty                                          90.6                112.2          (21.6)
Programs                                              30.2                 36.8           (6.6)
Total Specialty run-off                              128.4                173.3          (44.9)
Total losses and loss expenses payable,
net of reinsurance
recoverable on losses and loss expenses
payable and allowance for credit losses    $       1,040.1      $       1,026.1      $    14.0


Losses and loss expenses payable increased $14.0 million since December 31, 2020
primarily due to (i) growth in the commercial auto line of business, and (ii) a
higher level of unpaid catastrophe losses in the homeowners line of business,
partially offset by (i) the run-off from our previously exited specialty
insurance business and (ii) continued favorable development of prior accident
year losses in the workers compensation line of business, as discussed above.
We conduct quarterly reviews of loss development and make judgments in
determining the reserves for losses and loss expenses. Several factors are
considered by us when estimating ultimate liabilities, including consistency in
relative case reserve adequacy, consistency in claims settlement practices,
recent legal developments, historical data, actuarial projections, exposure
changes, anticipated inflation, current business conditions, catastrophe
development, late reported claims, and other reasonableness tests. Our quarterly
review also included the potential impact of COVID-19 on our reserves for losses
and loss expenses. For a discussion of the most significant risks and
uncertainties that could impact our results of operations, financial position,
liquidity, and cash flows as a result of the COVID-19 pandemic, see "Risk
Factors" in "Item 1A" of the 2020 Form 10-K.
The risks and uncertainties inherent in our estimates include, but are not
limited to, actual settlement experience differing from historical data, trends,
changes in business and economic conditions, court decisions creating
unanticipated liabilities, ongoing interpretation of policy provisions by the
courts, inconsistent decisions in lawsuits regarding coverage and additional
information discovered before settlement of claims. Our results of operations
and financial condition could be impacted, perhaps significantly, in the future
if the ultimate payments required for claims settlement vary from the liability
currently recorded. For a discussion of our reserving methodologies, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Critical Accounting Policies - Losses and Loss Expenses Payable" in
Item 7 of the 2020 Form 10-K.
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               STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(majority-owned subsidiary of National Automobile Insurance Mutual)

Acquisition and Operating Expenses
Our GAAP acquisition and operating expenses for the three and nine months ended
September 30, 2021 were $115.0 million and $343.2 million, respectively,
compared to $123.0 million and $357.4 million for the same 2020 periods. The
2021 third quarter and year to date decreases in acquisition and operating
expenses were primarily driven by (i) less estimated variable agent
compensation, and (ii) reduced IT development costs.
Investment Operations Segment
Our investments in fixed maturities, equity securities and certain other
invested assets are carried at fair value. The unrealized holding gains or
losses of our available-for-sale fixed maturities, net of applicable deferred
taxes, are included as a separate component of stockholders' equity as
accumulated other comprehensive income and as such are not included in the
determination of net income.
We have investment policy guidelines with respect to purchasing fixed maturity
investments for our insurance subsidiaries which preclude investments in bonds
that are rated below investment grade by a recognized rating service at the time
of purchase. Our fixed maturity portfolio is composed of high quality,
investment grade issues, consisting primarily of debt issues rated AAA, AA or A.
We obtain investment ratings from major rating services. If there is a split
rating, we assign the lowest rating obtained.
For further discussion regarding the management of our investment portfolio, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations - Investment Operations Segment" in Item 7 of
the 2020 Form 10-K.
Composition of Investment Portfolio
The following table sets forth the composition of our investment portfolio at
carrying value at September 30, 2021 and December 31, 2020:

($ millions)                                   September                    

the 31st of December,

                                                30, 2021       % of Total         2020         % of Total
Cash and cash equivalents                     $     46.1            1.6  %    $     90.7            3.2  %
Fixed maturities, at fair value:
Fixed maturities                                 2,113.7           75.4  %       2,121.0           73.9  %
Treasury inflation-protected securities            109.8            3.9  %         116.2            4.0  %
Total fixed maturities                           2,223.5           79.3  %       2,237.2           77.9  %
Notes receivable from affiliate                     70.0            2.5  %          70.0            2.4  %
Equity securities:
Large-cap securities                               163.5            5.8  %         134.2            4.7  %
Mutual and exchange traded funds                   212.5            7.6  %         255.5            8.9  %
Total equity securities                            376.0           13.4  %         389.7           13.6  %
Other invested assets:
International funds                                 62.2            2.2  %          55.8            2.0  %
Other invested assets                               17.1            0.6  %          15.3            0.5  %
Total other invested assets                         79.3            2.8  %          71.1            2.5  %
Other invested assets, at cost                      10.4            0.4  %          12.1            0.4  %
Total portfolio                               $  2,805.3          100.0  %    $  2,870.8          100.0  %


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               STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(majority-owned subsidiary of National Automobile Insurance Mutual)

The following table sets forth the amortized cost and fair value of
available-for-sale fixed maturities by contractual maturity at September 30,
2021:

  ($ millions)                                                                   Fair
                                                          Amortized cost         value
  Due in 1 year or less                                  $         141.6      $   142.7
  Due after 1 year through 5 years                                 592.3          614.4
  Due after 5 years through 10 years                               211.7          218.2
  Due after 10 years                                               516.7          548.6
  U.S. government agencies mortgage-backed securities              697.3          699.6
  Total                                                  $       2,159.6      $ 2,223.5


Expected maturities may differ from contractual maturities as the issuers may
have the right to call or prepay the obligations with or without call or
prepayment penalties. The duration of the fixed maturity portfolio was
approximately 4.11 and 4.72 as of September 30, 2021, and December 31, 2020,
respectively.
Investment Operations Revenue
The following table sets forth the components of net investment income for the
three and nine months ended September 30, 2021 and 2020:
 ($ millions)             Three months ended September 30           Nine months ended September 30
                              2021                   2020               2021                 2020
 Gross investment
 income:
 Fixed maturities      $          15.2           $    15.0       $         46.0          $    44.6
 Equity securities                 1.2                 2.1                  4.0                7.8
 Other                             1.0                 0.9                  3.0                2.7
 Total gross
 investment income                17.4                18.0                 53.0               55.1
 Less: Investment
 expenses                          0.4                 0.1                  0.7                0.6
 Net investment income $          17.0           $    17.9       $         52.3          $    54.5

 Average invested
 assets (at cost)      $       2,552.3           $ 2,512.9       $      2,551.0          $ 2,537.6
 Annualized investment
 yield                             2.7   %             2.8  %               2.7   %            2.9  %
 Annualized investment
 yield, after tax                  2.2   %             2.3  %               2.3   %            2.4  %
 Net investment
 income, after tax     $          14.1           $    14.7       $         43.2          $    44.8
 Effective tax rate               17.5   %            17.7  %              17.5   %           17.9  %


When a fixed maturity has been determined to have an impairment, the impairment
charge representing the credit loss is recognized in earnings as a realized loss
and on the balance sheet as an allowance for credit losses netted with the
amortized cost of fixed maturities. Future increases in fair value, if related
to credit factors, are recognized through earnings limited to the amount
previously recognized as an allowance for credit losses. The amount related to
non-credit factors is recognized in accumulated other comprehensive income and
future increases or decreases in fair value, if not credit losses, are included
in accumulated other comprehensive (loss) income. We reviewed our
available-for-sale fixed maturities at September 30, 2021 and 2020 and
determined that no credit impairment existed in the gross unrealized holding
losses. See Note 3, "Investments" to our condensed consolidated financial
statements included in Item 1 of this Form 10-Q for additional information.
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               STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(majority-owned subsidiary of National Automobile Insurance Mutual)

Gross Unrealized Investment Gains and Losses
Based upon our review of our investment portfolio at September 30, 2021, we
determined that there were no individual investments with an unrealized holding
loss that had a fair value significantly below cost continually for more than
one year. The following table sets forth detailed information on our investment
portfolio by investment category at fair value for our gross unrealized holding
gains (losses) at September 30, 2021:
                                                                     Gross unrealized
                                Cost or         Gross unrealized          holding
 ($ millions)               amortized cost       holding gains            losses           Fair value

Available for fixed sale

deadlines:

we treasury titles

and obligations of we

 government agencies        $       483.8      $           25.1      $      

(0.9) $ 508.0

State obligations and

 political subdivisions             470.7                  22.7             

(0.5) 492.9

 Corporate securities               507.8                  16.1             

(0.9) 523.0

we government agencies

 mortgage-backed securities         697.3                  13.4                (11.1)          699.6
 Total available-for-sale
 fixed maturities           $     2,159.6      $           77.3      $         (13.4)     $  2,223.5


The following table sets forth our unrealized holding gains for our
available-for-sale fixed maturities, net of deferred tax that was included as a
component of accumulated other comprehensive loss at September 30, 2021, and
December 31, 2020, and the change in unrealized holding gains, net of deferred
tax, for the nine months ended September 30, 2021:
 ($ millions)                         September 30, 2021      December 31, 

2020 $ Change

Investments available for sale:

Unrealized capital gains:

 Fixed maturities                    $             63.9      $            

120.2 $ (56.3)

 Net deferred federal income tax                  (13.5)                  (25.3)         11.8
 Unrealized gains, net of tax        $             50.4      $             94.9      $  (44.5)


At September 30, 2021, State Auto P&C had U.S. government agencies
mortgage-backed fixed maturity securities with a carrying value of approximately
$106.5 million pledged as collateral for loans from the FHLB. See "Liquidity and
Capital Resources - Borrowing Arrangements - FHLB Loans" in this Item 2 for a
further description of these loans. In accordance with the terms of the FHLB
loans, State Auto P&C retains all rights regarding these pledged securities.
Fair Value Measurements
We primarily use one independent nationally recognized third party pricing
service in developing fair value estimates. We obtain one price per security,
and our processes and control procedures are designed to ensure the value is
accurately recorded on an unadjusted basis. Through discussions with the pricing
service, we gain an understanding of the methodologies used to price the
different types of securities, that the data and the valuation methods utilized
are appropriate and consistently applied, and that the assumptions are
reasonable and representative of fair value. To validate the reasonableness of
the valuations obtained from the pricing service, we compare to other fair value
pricing information gathered from other independent pricing sources. See Note 4,
"Fair Value of Financial Instruments" to our condensed consolidated financial
statements included in Item 1 of this Form 10-Q for a presentation of our
available-for-sale investments within the fair value hierarchy at September 30,
2021, and December 31, 2020.
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               STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(majority-owned subsidiary of National Automobile Insurance Mutual)

LIQUIDITY AND CAPITAL RESOURCES
General
Liquidity refers to our ability to generate adequate amounts of cash to meet our
short- and long-term needs. Our primary sources of cash are premiums, investment
income, investment sales and the maturity of fixed income security investments.
The significant outflows of cash are payments of claims, commissions, premium
taxes, operating expenses, income taxes, dividends, interest and principal
payments on debt and investment purchases. The cash outflows may vary due to
uncertainties regarding settlement of large losses or catastrophic events. As a
result, we continually monitor our investment and reinsurance programs to ensure
they are appropriately structured to enable the insurance subsidiaries to meet
anticipated short-term and long-term cash requirements without the need to sell
investments to meet fluctuations in claim payments.
Liquidity
Our insurance subsidiaries must have adequate liquidity to ensure that their
cash obligations are met. However, as discussed below, the STFC Pooled Companies
do not have the day-to-day liquidity concerns normally associated with an
insurance company due to their participation in, and the terms of, the Pooling
Arrangement. In addition, State Auto P&C has a $100.0 million line of credit in
place with the FHLB available for general corporate purposes such as funding
liquidity needs. See "Borrowing Arrangements - FHLB Loans" described below.
Under the terms of the Pooling Arrangement, each period State Auto Mutual
collects all premiums from policyholders and pays all losses and expenses
associated with the insurance business produced by the STFC Pooled Companies and
the other pool participants, and then it settles the intercompany balances
generated by these transactions with the pool participants within 60 days
following each quarter end. We believe this provides State Auto Mutual with
sufficient liquidity to pay losses and expenses of our insurance operations on a
timely basis.
We are exposed to third-party credit risk both directly through its cessions to
reinsurers and indirectly through its participation in the Pooling Arrangement.
In addition to exposure to credit risk on reinsurance recoverables, we are also
exposed to credit risk on amounts due from insureds and agents. When settling
the intercompany balances, State Auto Mutual provides the STFC Pooled Companies
with full credit for the net premiums written and net losses paid during the
quarter.
While the total amount due to State Auto Mutual from policyholders and agents is
significant, the individual amounts due are relatively small at the policyholder
and agency level. The State Auto Group mitigates its exposure to this credit
risk through its in-house collections unit for both personal and commercial
accounts which is supplemented by third party collection service providers. In
addition to reliance upon recent and historical collection trends, determination
of the allowance for uncollectible premiums receivable at September 30, 2021
included consideration of other factors, including macro-economic conditions and
trends, in particular the estimated impact of COVID-19. Credit risk is partially
mitigated by the State Auto Group's ability to cancel the policy if the
policyholder does not pay the premium. Pursuant to the Pooling Arrangement, bad
debt expense for uncollectible premiums for the pool is allocated to pool
members on the basis of pool participation and is included in the quarterly
settlement of intercompany balances. This is included in "other expenses" on the
condensed consolidated statements of income and reflected in "due to/from
affiliates" on our condensed consolidated balance sheets.
We generally manage our cash flows through current operational activity and
maturing investments, without a need to liquidate any of our other investments;
however, should our written premiums decline or paid losses increase
significantly, or a combination thereof, we may need to liquidate investments at
losses in order to meet our cash obligations. This action was not necessary for
the three and nine months ended September 30, 2021.
We maintain a portion of our investment portfolio in relatively short-term and
highly liquid investments to ensure the immediate availability of funds to pay
claims and expenses. At September 30, 2021 and December 31, 2020, we had $46.1
million and $90.7 million, respectively, in cash and cash equivalents, and
$2,678.8 million and $2,698.0 million, respectively, of total investments. Our
available-for-sale fixed maturities included $9.6 million and $9.7 million of
securities on deposit with insurance regulators as required by law at September
30, 2021 and December 31, 2020, respectively. In addition, substantially all of
our fixed maturity and equity securities are traded on public markets. For a
further discussion regarding investments, see "Investments Operations Segment"
included in this Item 2.
Cash used in operating activities was $54.6 million and cash provided by
operating activities was $21.8 million for the nine months ended September 30,
2021 and 2020, respectively. Net cash from operations will vary from period to
period if there are significant changes in underwriting results, primarily the
level of premiums written or loss and loss expenses paid, and in cash flows from
investment income or federal income taxes paid.
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               STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(majority-owned subsidiary of National Automobile Insurance Mutual)

Cash provided by investing activities was $17.5 million and $42.8 million for
the nine months ended September 30, 2021 and 2020, respectively. The change was
primarily driven by an increase in the purchases of fixed maturities partially
offset by (i) higher proceeds from maturities of fixed maturities and (ii) a
decrease in the purchases of equity securities.
Cash used in financing activities was $7.5 million and $11.2 million for the
nine months ended September 30, 2021 and 2020, respectively. The change was
primarily driven by an increase in stock option exercises when compared to the
same 2020 period.
Borrowing Arrangements
FHLB Line of Credit
State Auto P&C has an Open Line of Credit Commitment (the "OLC") with the FHLB
that provides it with a $100.0 million open line of credit available for general
corporate purposes. As of September 30, 2021, no advances had been made under
the OLC. The OLC matures in April 2022. Draws under the OLC are to be funded
with a daily variable rate advance with a term of no more than 180 days with
interest payable monthly. All advances under the OLC are fully secured by a
pledge of specific investment securities of State Auto P&C.
FHLB Loans
State Auto P&C has a term loan with the FHLB in the amount of $21.5 million (the
"2020 FHLB Loan"). The 2020 FHLB Loan matures in September 2030 and provides for
interest-only payments during its term, with principal due in full at maturity,
and may be prepaid without penalty after five years and each of the succeeding
six months thereafter. The interest rate is fixed over the term of the loan at
1.37%. The 2020 FHLB Loan is fully secured by a pledge of specific investment
securities of State Auto P&C.
State Auto P&C also has an outstanding term loan with the FHLB in the principal
amount of $85.0 million (the "2018 FHLB Loan"). The 2018 FHLB Loan matures in
May 2033 and provides for interest-only payments during its term, with principal
due in full at maturity. The interest rate is fixed over the term of the loan at
3.96%. Prepayment of the 2018 FHLB Loan would require a prepayment fee. The 2018
FHLB Loan is fully secured by a pledge of specific investment securities of
State Auto P&C.
Subordinated Debentures
State Auto Financial's Delaware business trust subsidiary (the "Capital Trust")
has outstanding $15.0 million liquidation amount of capital securities, due
2033. In connection with the Capital Trust's issuance of the capital securities
and the related purchase by State Auto Financial of all of the Capital Trust's
common securities (liquidation amount of $0.5 million), State Auto Financial has
issued to the Capital Trust $15.5 million aggregate principal amount of
unsecured Floating Rate Junior Subordinated Debt Securities due 2033 (the
"Subordinated Debentures"). The sole assets of the Capital Trust are the
Subordinated Debentures and any interest accrued thereon. Interest on the
Capital Trust's capital and common securities is payable quarterly at a rate
equal to the three-month LIBOR rate plus 4.20%, adjusted quarterly. The
applicable interest rates for September 30, 2021 and 2020 were 4.32% and 4.44%,
respectively.
Reinsurance Arrangements
Members of the State Auto Group follow the customary industry practice of
reinsuring a portion of their exposures and paying to the reinsurers a portion
of the premiums received. Insurance is ceded principally to reduce net liability
on individual risks or for individual loss occurrences, including catastrophic
losses. Although reinsurance does not legally discharge the individual members
of the State Auto Group from primary liability for the full amount of limits
applicable under their policies, it does make the assuming reinsurer liable to
the extent of the reinsurance ceded.
To minimize the risk of reinsurer default, the State Auto Group cedes only to
third-party reinsurers who are rated A- or better by A.M. Best or Standard &
Poor's and also utilizes both domestic and international markets to diversify
its credit risk. We utilize reinsurance to limit our loss exposure and
contribute to our liquidity and capital resources.
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               STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(majority-owned subsidiary of National Automobile Insurance Mutual)

Other Reinsurance Arrangements
Each member of the State Auto Group is party to working reinsurance treaties for
casualty, workers' compensation and property lines with several reinsurers
arranged through reinsurance intermediaries. These agreements are described in
more detail below. We have also secured other reinsurance to limit the net cost
of large loss events for certain types of coverage. The State Auto Group also
makes use of facultative reinsurance for unique risk situations. The State Auto
Group also participates in state insurance pools and associations. In general,
these pools and associations are state sponsored and/or operated, impose
mandatory participation by insurers doing business in that state, and offer
coverage for hard-to-place risks at rates established by the state sponsor or
operator, thereby transferring risk of loss to the participating insurers in
exchange for premiums which may not be commensurate with the risk assumed.
Adverse Development Cover
The State Auto Group has an adverse development reinsurance agreement
implemented at the end of 2014, providing $40.0 million of coverage for adverse
claims development in excess of carried reserves as of November 30, 2014 for the
terminated restaurant program business previously underwritten by a MGU
subsidiary of State Auto Mutual.
Property Catastrophe Treaty
Members of the State Auto Group maintain a property catastrophe excess of loss
reinsurance agreement covering property catastrophe related events affecting at
least two risks. This property catastrophe reinsurance agreement renewed as of
July 1, 2021. Under this reinsurance agreement, we retain the first $100.0
million of catastrophe loss, each occurrence, with a 5.0% co-participation on
the next $340.0 million of covered loss, each occurrence which is broken down
into three layers of $60.0 million, $110.0 million, and $170.0 million. The
reinsurers are responsible for 95.0% of the catastrophe losses excess of $100.0
million up to $440.0 million, each occurrence. The State Auto Group is
responsible for catastrophe losses above $440.0 million. There is also an
automatic reinstatement of the limit for 100% of the deposit premium.
Property Per Risk Treaty
As of July 1, 2021, the State Auto Group renewed the property per risk excess of
loss reinsurance agreement for a 12-month term. Under this reinsurance
agreement, the State Auto Group retains the first $10.0 million of covered loss,
with reinsurers responsible for 100% of the loss excess of the $10.0 million
retention up to $20.0 million.

Casualty and Workers' Compensation Treaties
As of July 1, 2021, the State Auto Group renewed the casualty excess of loss
reinsurance agreement. Under this reinsurance agreement, the State Auto Group is
responsible for the first $3.0 million of losses that involve workers'
compensation, auto liability, other liability and umbrella liability policies.
This reinsurance agreement provides coverage up to $10.0 million, except for
commercial umbrella policies which are covered for limits up to $15.0 million.
Also, certain unusual claim situations involving extra contractual obligations,
excess of policy limits, LAE coverage and multiple policy or coverage loss
occurrences arising from bodily injury liability, property damage, uninsured
motorist and personal injury protection are covered by a Clash reinsurance
agreement that provides for $20.0 million of coverage in excess of $10.0 million
retention for each loss occurrence. This Clash reinsurance coverage sits above
the $7.0 million excess of $3.0 million arrangement.
In addition, each company in the State Auto Group is party to a workers'
compensation catastrophe insurance agreement that provides additional
reinsurance coverage for workers' compensation losses involving multiple
workers. Subject to $10.0 million of retention, reinsurers are responsible for
100.0% of the excess over $10.0 million up to $30.0 million of covered loss. For
loss amounts over $30.0 million, the casualty excess of loss reinsurance
agreement provides $20.0 million coverage in excess of $30.0 million. Workers'
compensation catastrophe coverage is subject to a "Maximum Any One Life"
limitation of $10.0 million. This limitation means that losses associated with
each worker may contribute no more than $10.0 million to covered loss under
these agreements.
Regulatory Considerations
At September 30, 2021, all of our insurance subsidiaries were in compliance with
statutory requirements relating to capital adequacy.
ADOPTION OF RECENT ACCOUNTING PRONOUNCEMENTS
For information on this topic, see Note 1 of our condensed consolidated
financial statements included in Item 1 of this Form 10-Q.
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Contents

               STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(majority-owned subsidiary of National Automobile Insurance Mutual)

CREDIT AND FINANCIAL STRENGTH RATINGS
On July 14, 2021, A.M. Best placed the State Auto Group under review with
positive implications with a financial strength rating of A- (Excellent)
following the announcement of the proposed Transactions with LMHC described
elsewhere in this Form 10-Q. The ratings will remain under review until all
approvals are finalized, the Transaction close and A.M. Best evaluates the
overall impact.
MARKET RISK
With respect to Market Risk, see the discussion regarding this subject at
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Investment Operations Segment - Market Risk" in Item 7 of the 2020
Form 10-K. There have been no material changes from the information reported
regarding Market Risk in the 2020 Form 10-K.
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Contents

               STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(majority-owned subsidiary of National Automobile Insurance Mutual)


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