State Auto Financial Corp. ended 2015 with a steep drop in net income and a combined ratio that landed well above 100. Executives blamed a bad year for the insurer’s auto lines but added that they’ve taken corrective steps.

Net income for 2015 hit $51.2 million, or $1.23 per diluted share. In 2014, those numbers were $107.4 million, or $260 per diluted share. The 2015 fourth quarter was even more drastic, with net income of $3.1 million, or $0.07 per diluted share. That’s down from $65.4 million, or $158 per diluted share, over the same period in 2014.

STFC’s combined ratio for Q4 2015 was 106.2 versus 113.3 for the 2014 fourth quarter. For the year, the combined ratio was 101.5, down from 105.5 in 2014.

“We didn’t make an underwriting profit [in the fourth quarter and 2015 full year], and we failed to meet our growth objectives,” STFC President and CEO Michael LaRocco said in prepared remarks. “We understand our issues, and we’re implementing a well-thought-out approach to address them.”

LaRocco explained that the insurer determined both personal and commercial auto lines were not adequately priced. How to correct this?

“We identified opportunities in pricing segmentation, underwriting leakage and claims that will support our profitable growth goal,” LaRocco said. “Also in the fourth quarter, we initiated rate reviews in all states. We realigned our claims organization to deliver product-specific claims teams for both personal and commercial auto.”

As well, STFC appointed product leaders for each of its core products: auto, home, farm and ranch, small business, commercial, workers compensation, and its range of specialty lines. LaRocco added that the insurer is improving its pricing models and segmentation across most of its products and is ramping up new products to tap into emerging opportunities such as telematics, driverless vehicles and “smart” homes.

Here are Q4 and full-year 2015 result highlights:

• Net premiums written came in at $302.7 million for the 2015 fourth quarter versus $356.7 million in Q4 2014. Net premiums written hit $1.27 billion for 2015 versus $1.19 billion in 2014.
• Net premiums earned came in at $324 million for Q4 compared to $273.1 million in the 2014 fourth quarter. Net earned premiums surpassed $1.27 billion in 2015 compared to just over $1 billion in 2014.
• Net investment income came in at $17.8 million in the 2015 fourth quarter, about flat compared to the same period in 2014. For 2015, net investment income hit $71.7 million, down from $74.7 million in 2014.
• LaRocco said that STFC’s homeowners line made underwriting profit but didn’t grow, though there was an uptick in new business in the 2015 second half. Changes to the line should boost competitiveness and progress in the months ahead, LaRocco said.
• E&S casualty and farm and ranch products are both growing, profitable lines, LaRocco said.

State Auto Financial Corp., based in Ohio, is a super regional property/casualty insurance holding company.

Source: State Auto Financial Corp.