Investment losses send State Auto to 4Q loss

After racking up record catastrophe losses in the first nine months of the year, it was the stormy financial world that helped send State Auto Financial Corp. to a loss in the fourth quarter.

The Columbus-based insurer said it lost $600,000, or 2 cents a share, in the last three months of 2008. That compares with profit of $41.7 million, or $1.01 a share, the year before. The fourth-quarter loss includes a $29.7 million write-down on the company’s investment portfolio, State Auto (NASDAQ:STFC) said.

“(The company’s) strong fourth-quarter sales and overall profitable underwriting results were not enough to compensate for the turmoil in the world’s financial markets,” CEO Bob Restrepo said in a release.

During the quarter, net written premiums grew 16 percent to $281.2 million, but the company was hit with $32.7 million in investment losses. That helped send total revenue down 2 percent to $273.3 million from $278.3 million a year ago.

The company’s combined ratio – measuring losses and expenses as a percentage of earned premiums - in the fourth quarter increased to 96, up more than 10 points from 85.2 in last year’s fourth quarter. But new storm activity contributed little to the increase, unlike three previous quarters of consecutive record catastrophe losses. State Auto’s full-year combined ratio totaled 109.8, meaning the company logged about $11 in catastrophe losses for every $10 in premiums it earned. Hurricane Ike accounted for more than $45 million in losses during the third quarter after causing serious damage in Texas and sending strong winds into Ohio, Kentucky and Indiana in September.

State Auto’s full-year loss totaled $31.1 million, or 78 cents a share, versus profit of $119.1 million, or $2.86 a share, in 2007. Revenue for the year grew 6 percent to $1.18 billion from $1.11 billion the year before.

Restrepo told investors Tuesday the company has reason to be optimistic in 2009 despite rough economic conditions.

“Despite record catastrophe losses in the first three quarters, a prolonged soft business insurance market and a sharp decline in the financial markets, STFC produced an underwriting profit in the fourth quarter and continued to grow,” he said.

State Auto employs about 2,000. Columbus-based State Automobile Mutual Insurance Co. owns about two-thirds of its shares.

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