Index to Form 10-Q Quarterly Report for the three and nine month periods ended September 30, ~~2019~~

2020


		Part I. Financial Information

Item 1.		~~Part I. Financial Information~~

~~Item 1.~~	Financial Statements (Unaudited)
		Condensed consolidated balance sheets – September 30, ~~2019~~2020 and December 31, ~~2018~~2019	1
		Condensed consolidated statements of income – Three months ended September 30, ~~2019~~2020 and ~~2018~~2019	2
		Condensed consolidated statements of income – Nine months ended September 30, ~~2019~~2020 and ~~2018~~2019	3
		Condensed consolidated statements of comprehensive income – Three months ended September 30, ~~2019~~2020 and ~~2018~~2019	4
		Condensed consolidated statements of comprehensive income – Nine months ended September 30, ~~2019~~2020 and ~~2018~~2019	5
		Condensed consolidated statements of stockholders’ equity - Three months ended September 30, ~~2019~~2020 and ~~2018~~2019	6
		Condensed consolidated statements of stockholders’ equity - Nine months ended September 30, ~~2019~~2020 and ~~2018~~2019	7
		Condensed consolidated statements of cash flows – Nine months ended September 30, ~~2019~~2020 and ~~2018~~2019	8
		Notes to condensed consolidated financial statements ~~– September 30, 2019~~	9
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	2528
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	5259
Item 4.		Controls and Procedures	5360

		Part II. Other Information
Item 1.		Legal Proceedings	5461
Item 1A.		Risk Factors	5461
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	5462
Item 4.		Mine Safety Disclosures	5462
Item 5.		Other Information	5462
Item 6.		Exhibits	5563
		Signatures	5664

Table of Contents

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

PART I – FINANCIAL STATEMENTS

Item 1. Condensed Consolidated Balance Sheets


($ and shares in millions, except per share amounts)	September 30, 2020		December 31, 2019
(unaudited)
Assets
Fixed maturities, available-for-sale, at fair value (amortized cost $2,047.1 and $2,080.0, respectively)	$	2,166.3	$	2,127.9
Equity securities	339.5		395.2
Other invested assets	62.5		69.7
Other invested assets, at cost	12.5		6.5
Notes receivable from affiliate	70.0		70.0
Total investments	2,650.8		2,669.3
Cash and cash equivalents	131.4		78.0
Accrued investment income and other assets	31.1		31.7
Premiums receivable	14.1		13.6
Deferred policy acquisition costs (affiliated net assumed $27.6 and $20.2, respectively)	123.7		111.1
Reinsurance recoverable on losses and loss expenses payable	35.2		13.6
Prepaid reinsurance premiums	8.4		7.5
Due from affiliate	18.3		7.9
Current federal income taxes	6.7		6.3
Net deferred federal income taxes	44.6		42.2
Property and equipment, held for sale	4.2		4.2
Total assets	$	3,068.5	$	2,985.4
Liabilities and Stockholders’ Equity
Losses and loss expenses payable (affiliated net assumed $450.9 and $500.8, respectively)	$	1,091.3	$	1,066.5
Unearned premiums (affiliated net assumed $450.8 and $415.8, respectively)	731.0		649.2
Notes payable (affiliates $15.2 and $15.2, respectively)	122.0		122.0
Pension and postretirement benefits	54.0		72.9


Other liabilities (affiliated net assumed $18.5 and $19.5, respectively)	126.1		114.9
Total liabilities	2,124.4		2,025.5
Stockholders’ equity:
Class A Preferred stock (nonvoting), without par value. Authorized 2.5 shares; none issued	0		0
Class B Preferred stock, without par value. Authorized 2.5 shares; none issued	0		0
Common stock, without par value. Authorized 100.0 shares; 50.7 and 50.4 shares issued, respectively, at stated value of $2.50 per share	126.7		125.9
Treasury stock, 6.9 and 6.9 shares, respectively, at cost	(118.4)		(117.5)
Additional paid-in capital	212.1		206.7
Accumulated other comprehensive income (loss)	23.3		(37.9)
Retained earnings	700.4		782.7
Total stockholders’ equity	944.1		959.9
Total liabilities and stockholders’ equity	$	3,068.5	$	2,985.4

($ and shares in millions, except per share amounts) September 30, 2019 December 31, 2018
(unaudited)
Assets
Fixed maturities, available-for-sale, at fair value (amortized cost $2,129.0 and $2,188.2, respectively) $ 2,189.3
$ 2,159.5
Equity securities 373.3
315.0
Other invested assets 64.6
48.8
Other invested assets, at cost 6.5
5.6
Notes receivable from affiliate 70.0
70.0
Total investments 2,703.7
2,598.9
Cash and cash equivalents 38.3
59.8
Accrued investment income and other assets 34.7
32.4
Deferred policy acquisition costs (affiliated net assumed $53.0 and $48.3, respectively) 114.3
101.9
Reinsurance recoverable on losses and loss expenses payable 7.2
5.5
Prepaid reinsurance premiums 7.5
6.6
Due from affiliate 17.4
—
Current federal income taxes 6.3
5.9
Net deferred federal income taxes 46.2
77.8
Property and equipment, at cost 4.2
7.1
Total assets $ 2,979.8
$ 2,895.9
Liabilities and Stockholders’ Equity
Losses and loss expenses payable (affiliated net assumed $521.5 and $593.6, respectively) $ 1,092.7
$ 1,146.8
Unearned premiums (affiliated net assumed $111.7 and $112.4, respectively) 649.2
584.2
Notes payable (affiliates $15.2 and $15.2, respectively) 122.0
122.0
Pension and postretirement benefits 70.3
83.0
Due to affiliate —
22.4
Other liabilities (affiliated net assumed $13.1 and $19.9, respectively) 101.9
119.0
Total liabilities 2,036.1
2,077.4
Stockholders’ equity:
Class A Preferred stock (nonvoting), without par value. Authorized 2.5 shares; none issued —
—
Class B Preferred stock, without par value. Authorized 2.5 shares; none issued —
—
Common stock, without par value. Authorized 100.0 shares; 50.3 and 50.0 shares issued, respectively, at stated value of $2.50 per share 125.8
125.0
Treasury stock, 6.8 and 6.8 shares, respectively, at cost (117.5 ) (117.0 )
Additional paid-in capital 205.2
194.2
Accumulated other comprehensive loss (24.2 ) (96.4 )
Retained earnings 754.4
712.7
Total stockholders’ equity 943.7
818.5
Total liabilities and stockholders’ equity $ 2,979.8
$ 2,895.9

See accompanying notes to condensed consolidated financial statements.

Table of Contents

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Condensed Consolidated Statements of Income


($ in millions, except per share amounts)	Three months ended September 30
(unaudited)	2020		2019
Earned premiums (affiliated net assumed $69.3 and $55.7, respectively)	$	353.2	$	319.6
Net investment income (affiliates $0.7 and $0.7, respectively)	17.9		19.3
Net investment gain (loss)	20.0		(5.0)
Other income from affiliates	0.5		0.6
Total revenues	391.6		334.5

Losses and loss expenses (affiliated net assumed $48.7 and $24.2, respectively)	251.6		208.4
Acquisition and operating expenses (affiliated net assumed $24.2 and $17.6, respectively)	123.0		109.7
Interest expense (affiliates $0.1 and $0.2, respectively)	1.1		1.2
Other expenses	1.1		2.5
Total expenses	376.8		321.8
Income before federal income taxes	14.8		12.7
Federal income tax expense:

Deferred	3.2		1.2
Total federal income tax expense	3.2		1.2
Net income	$	11.6	$	11.5
Earnings per common share:
Basic	$	0.26	$	0.26
Diluted	$	0.26	$	0.25

($ in millions, except per share amounts) Three months ended September 30
(unaudited) 2019 2018
Earned premiums (affiliated net assumed $55.7 and $71.9, respectively) $ 319.6
$ 306.8
Net investment income (affiliates $0.7 and $1.3, respectively) 19.3
20.8
Net investment (loss) gain (5.0 ) 17.8
Other income from affiliates 0.6
0.6
Total revenues 334.5
346.0

Losses and loss expenses (affiliated net assumed $24.2 and $43.0, respectively) 208.4
191.0
Acquisition and operating expenses (affiliated net assumed $17.6 and affiliated net ceded $26.8, respectively) 109.7
110.9
Interest expense (affiliates $0.2 and $0.2, respectively) 1.2
1.2
Other expenses 2.5
1.9
Total expenses 321.8
305.0
Income before federal income taxes 12.7
41.0
Federal income tax expense (benefit):
Current —
(0.1 )
Deferred 1.2
7.7
Total federal income tax expense 1.2
7.6
Net income $ 11.5
$ 33.4
Earnings per common share:
Basic $ 0.26
$ 0.78
Diluted $ 0.25
$ 0.76
Dividends paid per common share $ 0.10
$ 0.10

See accompanying notes to condensed consolidated financial statements.

Table of Contents

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Condensed Consolidated Statements of Income


($ in millions, except per share amounts)	Nine months ended September 30
(unaudited)	2020		2019
Earned premiums (affiliated net assumed $189.2 and $168.5, respectively)	$	1,024.4	$	930.0
Net investment income (affiliates $2.1 and $2.3, respectively)	54.5		60.4
Net investment (loss) gain	(39.3)		50.2
Other income from affiliates	1.6		1.6
Total revenues	1,041.2		1,042.2

Losses and loss expenses (affiliated net assumed $132.8 and $125.1, respectively)	762.2		637.6
Acquisition and operating expenses (affiliated net assumed $65.9 and $54.5, respectively)	357.4		325.2
Interest expense (affiliates $0.6 and $0.7, respectively)	3.6		3.7
Other expenses	5.6		9.0
Total expenses	1,128.8		975.5
(Loss) income before federal income taxes	(87.6)		66.7
Federal income tax (benefit) expense:
Current	(0.4)		(0.4)
Deferred	(18.5)		12.4
Total federal income tax (benefit) expense	(18.9)		12.0
Net (loss) income	$	(68.7)	$	54.7
(Loss) earnings per common share:
Basic	$	(1.57)	$	1.26
Diluted	$	(1.57)	$	1.25

($ in millions, except per share amounts) Nine months ended September 30
(unaudited) 2019 2018
Earned premiums (affiliated net assumed $168.5 and $251.1, respectively) $ 930.0
$ 929.2
Net investment income (affiliates $2.3 and $3.7, respectively) 60.4
62.2
Net investment gain 50.2
18.2
Other income from affiliates 1.6
1.8
Total revenues 1,042.2
1,011.4

Losses and loss expenses (affiliated net assumed $125.1 and $136.3, respectively) 637.6
621.1
Acquisition and operating expenses (affiliated net assumed $54.5 and $52.3, respectively) 325.2
333.0
Interest expense (affiliates $0.7 and $0.7, respectively) 3.7
4.5
Other expenses 9.0
7.4
Total expenses 975.5
966.0
Income before federal income taxes 66.7
45.4
Federal income tax (benefit) expense:

Current (0.4 ) (1.1 )
Deferred 12.4
9.2
Total federal income tax expense 12.0
8.1
Net income $ 54.7
$ 37.3
Earnings per common share:

Basic $ 1.26
$ 0.87
Diluted $ 1.25
$ 0.86
Dividends paid per common share $ 0.30
$ 0.30

See accompanying notes to condensed consolidated financial statements.

Table of Contents

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Consolidated Statements of Comprehensive Income


($ in millions, except per share amounts)	Three months ended September 30
(unaudited)	2020		2019
Net income	$	11.6	$	11.5
Other comprehensive income, net of tax:
Net unrealized holding gains on available-for-sale investments:
Unrealized holding gains	4.6		22.6
Reclassification adjustments for losses (gains) realized in net income	0.2		(1.2)
Income tax expense	(1.1)		(4.5)
Total net unrealized holding gains on available-for-sale investments	3.7		16.9
Net unrecognized benefit plan obligations:
Reclassification adjustments for amortization to statements of income:
Negative prior service cost	(1.6)		(1.6)
Net actuarial loss	3.7		2.4
Income tax expense	(0.4)		(0.2)
Total net unrecognized benefit plan obligations	1.7		0.6
Other comprehensive income	5.4		17.5
Comprehensive income	$	17.0	$	29.0

($ in millions, except per share amounts) Three months ended September 30
(unaudited) 2019 2018
Net income $ 11.5
$ 33.4
Other comprehensive income (loss), net of tax:
Net unrealized holding gain (loss) on fixed available-for-sale investments:
Unrealized holding gain (loss) 22.6
(14.7 )
Reclassification adjustments for gains realized in net income (1.2 ) —
Income tax (expense) benefit (4.5 ) 3.1
Total net unrealized holding gain (loss) on available-for-sale investments 16.9
(11.6 )
Net unrecognized benefit plan obligations:
Reclassification adjustments for amortization to statements of income:
Negative prior service cost (1.6 ) (1.6 )
Net actuarial loss 2.4
3.3
Income tax expense (0.2 ) (0.4 )
Total net unrecognized benefit plan obligations 0.6
1.3
Other comprehensive income (loss) 17.5
(10.3 )
Comprehensive income $ 29.0
$ 23.1

See accompanying notes to condensed consolidated financial statements.

Table of Contents

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Consolidated Statements of Comprehensive (Loss) Income ~~(Loss)~~


($ in millions, except per share amounts)	Nine months ended September 30
(unaudited)	2020		2019
Net (loss) income	$	(68.7)	$	54.7
Other comprehensive income, net of tax:
Net unrealized holding gains on fixed available-for-sale investments:
Unrealized holding gains	74.5		91.8
Reclassification adjustments for gains realized in net income	(3.2)		(2.8)
Income tax expense	(15.0)		(18.7)
Total net unrealized holding gains on available-for-sale investments	56.3		70.3
Net unrecognized benefit plan obligations:
Reclassification adjustments for amortization to statements of income:
Negative prior service cost	(4.8)		(4.8)
Net actuarial loss	11.0		7.2
Income tax expense	(1.3)		(0.5)
Total net unrecognized benefit plan obligations	4.9		1.9
Other comprehensive income	61.2		72.2
Comprehensive (loss) income	$	(7.5)	$	126.9

($ in millions, except per share amounts) Nine months ended September 30
(unaudited) 2019 2018
Net income $ 54.7
$ 37.3
Other comprehensive income (loss), net of tax:
Net unrealized holding gain (loss) on fixed available-for-sale investments:
Unrealized holding gain (loss) 91.8
(61.6 )
Reclassification adjustments for gains realized in net income (2.8 ) (1.7 )
Income tax (expense) benefit (18.7 ) 13.3
Total net unrealized holding gain (loss) on available-for-sale investments 70.3
(50.0 )
Net unrecognized benefit plan obligations:
Reclassification adjustments for amortization to statements of income:
Negative prior service cost (4.8 ) (4.8 )
Net actuarial loss 7.2
9.9
Income tax expense (0.5 ) (1.1 )
Total net unrecognized benefit plan obligations 1.9
4.0
Other comprehensive income (loss) 72.2
(46.0 )
Comprehensive income (loss) $ 126.9
$ (8.7 )

See accompanying notes to condensed consolidated financial statements.

Table of Contents

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Condensed Consolidated Statements of Stockholders’ Equity


(in millions)	Three months ended September 30
	2020		2019
Common shares:
Balance at beginning of period	50.7		50.3

Balance at September 30	50.7		50.3
Treasury shares:
Balance at beginning of period	(6.9)		(6.8)

Balance at September 30	(6.9)		(6.8)
Common stock:
Balance at beginning of period	$	126.7	$	125.7
Issuance of shares	0		0.1
Balance at September 30	$	126.7	$	125.8
Treasury stock:
Balance at beginning of period	$	(118.4)	$	(117.5)

Balance at September 30	$	(118.4)	$	(117.5)
Additional paid-in capital:
Balance at beginning of period	$	211.1	$	202.5
Issuance of common stock	(0.2)		0.7

Stock awards granted	1.2		2.0
Balance at September 30	$	212.1	$	205.2
Accumulated other comprehensive income (loss):
Balance at beginning of period	$	17.9	$	(41.7)

Change in net unrealized holding gains on available-for-sale investments	3.7		16.9
Total net unrecognized benefit plan obligations	1.7		0.6
Balance at September 30	$	23.3	$	(24.2)
Retained earnings:
Balance at beginning of period	$	693.2	$	747.2

Net income	11.6		11.5
Dividends declared, $0.10 and $0.10 per share (affiliates $2.6 and $2.6, respectively)	$	(4.4)	$	(4.3)
Balance at September 30	700.4		754.4
Total stockholders’ equity at September 30	$	944.1	$	943.7

(in millions) Three months ended September 30
2019 2018
Common shares:
Balance at beginning of period 50.3
49.7
Issuance of shares —
0.1
Balance at September 30 50.3
49.8
Treasury shares:
Balance at beginning of period (6.8 ) (6.8 )
Balance at September 30 (6.8 ) (6.8 )
Common stock:
Balance at beginning of period $ 125.7
$ 124.1
Issuance of shares 0.1
0.4
Balance at September 30 $ 125.8
$ 124.5
Treasury stock:
Balance at beginning of period $ (117.5 ) $ (116.9 )
Shares acquired on stock award exercises and vested restricted shares —
(0.1 )
Balance at September 30 $ (117.5 ) $ (117.0 )
Additional paid-in capital:
Balance at beginning of period $ 202.5
$ 184.8
Issuance of common stock 0.7
2.0
Stock awards granted 2.0
1.8
Balance at September 30 $ 205.2
$ 188.6
Accumulated other comprehensive loss:
Balance at beginning of period $ (41.7 ) $ (95.8 )
Change in unrealized holding gain (loss) on investments, net of tax 16.9
(11.6 )
Change in unrecognized benefit plan obligations, net of tax 0.6
1.3
Balance at September 30 $ (24.2 ) $ (106.1 )
Retained earnings:
Balance at beginning of period $ 747.2
$ 712.3
Net income 11.5
33.4
Dividends declared (affiliates $2.6 and $2.6, respectively) $ (4.3 ) $ (4.1 )
Balance at September 30 754.4
741.6
Total stockholders’ equity at September 30 $ 943.7
$ 831.6

See accompanying notes to condensed consolidated financial statements.

Table of Contents

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Condensed Consolidated Statements of Stockholders’ Equity

(in millions) Nine months ended September 30
2019 2018
Common shares:
Balance at beginning of year 50.0
49.2
Issuance of shares 0.3
0.6
Balance at September 30 50.3
49.8
Treasury shares:
Balance at beginning of year (6.8 ) (6.8 )
Balance at September 30 (6.8 ) (6.8 )
Common stock:
Balance at beginning of year $ 125.0
$ 123.0
Issuance of shares 0.8
1.5
Balance at September 30 $ 125.8
$ 124.5
Treasury stock:
Balance at beginning of year $ (117.0 ) $ (116.8 )
Shares acquired on stock award exercises and vested restricted shares (0.5 ) (0.2 )
Balance at September 30 $ (117.5 ) $ (117.0 )
Additional paid-in capital:
Balance at beginning of year $ 194.2
$ 171.8
Issuance of common stock 4.0
10.1
Stock awards granted 7.0
6.7
Balance at September 30 $ 205.2
$ 188.6
Accumulated other comprehensive (loss) income:
Balance at beginning of year $ (96.4 ) $ 3.8
Cumulative effect of change in accounting for equity securities and other invested assets and reclassification of stranded tax effects as of January 1, 2018 —
(63.9 )
Change in unrealized holding gain (loss) on investments, net of tax 70.3
(50.0 )
Change in unrecognized benefit plan obligations, net of tax 1.9
4.0
Balance at September 30 $ (24.2 ) $ (106.1 )
Retained earnings:
Balance at beginning of year $ 712.7
$ 653.2
Cumulative effect of change in accounting for equity securities and other invested assets and reclassification of stranded tax effects as of January 1, 2018 —
63.9
Net income 54.7
37.3
Dividends declared (affiliates $7.8 and $7.8, respectively) $ (13.0 ) $ (12.8 )
Balance at September 30 754.4
741.6
Total stockholders’ equity at September 30 $ 943.7
$ 831.6


(in millions)	Nine months ended September 30
	2020		2019
Common shares:
Balance at beginning of year	50.4		50.0
Issuance of shares	0.3		0.3
Balance at September 30	50.7		50.3
Treasury shares:
Balance at beginning of year	(6.9)		(6.8)

Balance at September 30	(6.9)		(6.8)
Common stock:
Balance at beginning of year	$	125.9	$	125.0
Issuance of shares	0.8		0.8
Balance at September 30	$	126.7	$	125.8
Treasury stock:
Balance at beginning of year	$	(117.5)	$	(117.0)
Shares acquired on stock award exercises and vested restricted shares	(0.9)		(0.5)
Balance at September 30	$	(118.4)	$	(117.5)
Additional paid-in capital:
Balance at beginning of year	$	206.7	$	194.2
Issuance of common stock	2.0		4.0

Stock awards granted	3.4		7.0
Balance at September 30	$	212.1	$	205.2
Accumulated other comprehensive income (loss):
Balance at beginning of year	$	(37.9)	$	(96.4)

Change in net unrealized holding gains on available-for-sale investments	56.3		70.3
Change in unrecognized benefit plan obligations, net of tax	4.9		1.9
Balance at September 30	$	23.3	$	(24.2)
Retained earnings:
Balance at beginning of year	$	782.7	$	712.7
Cumulative effect of change in accounting to establish an allowance for expected credit losses at January 1, 2020	(0.5)		0
Net (loss) income	(68.7)		54.7
Dividends declared, $0.30 and $0.30 per share (affiliates $7.8 and $7.8, respectively)	$	(13.1)	$	(13.0)
Balance at September 30	700.4		754.4
Total stockholders’ equity at September 30	$	944.1	$	943.7

See accompanying notes to condensed consolidated financial statements.

Table of Contents

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Condensed Consolidated Statements of Cash Flows


($ in millions)	Nine months ended September 30
(unaudited)	2020		2019
Cash flows from operating activities:
Net (loss) income	$	(68.7)	$	54.7
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities
Depreciation and amortization, net	7.6		6.2
Share-based compensation	0		7.0
Net investment loss (gain)	39.3		(50.2)
Changes in operating assets and liabilities:
Deferred policy acquisition costs	(12.6)		(12.4)
Accrued investment income and other assets	0.6		(2.3)
Premiums receivables	(0.5)		(3.2)
Postretirement and pension benefits	(17.0)		(12.2)
Other liabilities and due to/from affiliates, net	8.5		(51.8)
Reinsurance recoverable on losses and loss expenses payable and prepaid reinsurance premiums	(22.5)		(2.6)
Losses and loss expenses payable	24.2		(54.1)
Unearned premiums	81.8		65.0
Deferred tax on share-based awards	(0.1)		(0.7)
Federal income taxes	(18.8)		12.7
Net cash provided by (used in) operating activities	21.8		(43.9)
Cash flows from investing activities:
Purchases of fixed maturities available-for-sale	(462.6)		(459.9)
Purchases of equity securities	(65.6)		(48.9)
Purchases of other invested assets	(7.3)		(12.9)
Maturities, calls and pay downs of fixed maturities available-for-sale	274.9		267.1
Sales of fixed maturities available-for-sale	216.1		248.7
Sales of equity securities	86.2		34.4
Sales of other invested assets	0.9		1.0
Disposals of property and equipment	0.2		1.6
Net cash provided by investing activities	42.8		31.1
Cash flows from financing activities:
Proceeds from issuance of common stock	2.8		4.8
Payments to acquire treasury stock	(0.9)		(0.5)
Payment of dividends	(13.1)		(13.0)

Proceeds from short-term debt	60.0		0
Repayment of short-term debt	(60.0)		0
Proceeds from long-term debt	21.5		0
Repayment of long-term debt	(21.5)		0
Net cash used in financing activities	(11.2)		(8.7)
Net increase (decrease) in cash and cash equivalents	53.4		(21.5)
Cash and cash equivalents at beginning of period	78.0		59.8
Cash and cash equivalents at end of period	$	131.4	$	38.3
Supplemental disclosures:
Interest paid (affiliates $0.6 and $0.7, respectively)	$	3.5	$	3.5

($ in millions) Nine months ended September 30
(unaudited) 2019 2018
Cash flows from operating activities:
Net income $ 54.7
$ 37.3
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization, net 6.2
6.7
Share-based compensation 7.0
5.7
Net investment gain (50.2 ) (18.2 )
Changes in operating assets and liabilities:
Deferred policy acquisition costs (12.4 ) 5.8
Accrued investment income and other assets (2.3 ) (3.0 )
Postretirement and pension benefits (12.2 ) (16.3 )
Other liabilities and due to/from affiliates, net (55.0 ) 19.0
Reinsurance recoverable on losses and loss expenses payable and prepaid reinsurance premiums (2.6 ) (2.3 )
Losses and loss expenses payable (54.1 ) (56.9 )
Unearned premiums 65.0
(16.2 )
Deferred tax (benefit) expense on share-based awards (0.7 ) —
Federal income taxes 12.7
8.1
Net cash used in operating activities (43.9 ) (30.3 )
Cash flows from investing activities:
Purchases of fixed maturities available-for-sale (459.9 ) (267.0 )
Purchases of equity securities (48.9 ) (82.2 )
Purchases of other invested assets (12.9 ) (1.1 )
Maturities, calls and pay downs of fixed maturities available-for-sale 267.1
180.4
Sales of fixed maturities available-for-sale 248.7
69.7
Sales of equity securities 34.4
89.3
Sales of other invested assets 1.0
0.9
Net disposals of property and equipment 1.6
—
Net cash provided by (used in) investing activities 31.1
(10.0 )
Cash flows from financing activities:
Proceeds from issuance of common stock 4.8
11.7
Payments to acquire treasury stock (0.5 ) (0.2 )
Payment of dividends (13.0 ) (12.8 )
Payment of prepayment fee —
(0.4 )
Net cash used in financing activities (8.7 ) (1.7 )
Net decrease in cash and cash equivalents (21.5 ) (42.0 )
Cash and cash equivalents at beginning of period 59.8
91.5
Cash and cash equivalents at end of period $ 38.3
$ 49.5
Supplemental disclosures:
Interest expense (affiliates $0.7 and $0.7, respectively) $ 3.5
$ 4.5

See accompanying notes to condensed consolidated financial statements.

Table of Contents

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of State Auto Financial Corporation and Subsidiaries (“State Auto Financial” or the “Company”) have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements. In the opinion of the Company, all adjustments (consisting of normal, recurring accruals) considered necessary for a fair ~~presentation~~statement have been included. Operating results for the three and nine months ended September 30, ~~2019,~~2020, are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2019.~~2020. The balance sheet at December 31, ~~2018,~~2019, has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.

For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 (the ~~“2018~~“2019 Form 10-K”). Capitalized terms used herein and not otherwise defined shall have the meaning ascribed to them in the ~~2018~~2019 Form 10-K.

~~Revisions~~The COVID-19 pandemic has caused an economic downturn on a global scale, as well as significant market disruption and volatility. The scope, duration and magnitude of ~~Previously Issued Financial Statements~~

~~Revisions~~the effects of COVID-19 continue to ~~certain line items~~evolve rapidly and in ways that are difficult or impossible to anticipate. The Company cannot, at this time, predict the impact the pandemic will have on its future consolidated ~~statements of comprehensive income and consolidated statements of~~financial position, cash flows ~~for~~or results of operations, however, the ~~three~~impact could be material. The Company's future financial results and ~~nine months ended September 30, 2018, were affected by revisions~~operations depend in part on the duration and severity of ~~previously issued financial statements. All such changes~~the pandemic and what actions are taken to mitigate the consolidated statements of cash flows were included within cash flows from operating activities and all related changes in the consolidated statements of comprehensive income were isolated to unrecognized benefit plan obligations. The basis of these revisions were described in Note 2 to our Consolidated Financial Statements set forth in Part II, Item 8, "Financial Statements and Supplementary Data" included in the 2018 Form 10-K.outbreak.

Adoption of Recent Accounting Pronouncements

~~Leases~~Measurement of Credit Losses on Financial Instruments

On January 1, 2020, the Company adopted ASU 2016-13 Financial Instruments - Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost. This includes the Company's direct third party reinsurance recoverables, and the Company's share of the State Auto Group's third party reinsurance recoverables assumed via the Pooling Arrangement (as defined in Note 7). In addition, ASC 326 made changes to the accounting for available-for-sale fixed maturities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale fixed maturities management does not intend to sell or believes that it is more likely than not they will not be required to sell.

The adoption of this guidance reduced retained earnings by $0.5 million, net of tax, and established an allowance for estimated uncollectible reinsurance as of January 1, 2020. Adoption of ASC 326 for available-for-sale fixed maturities was prospective, and therefore there was no adjustment to retained earnings as of January 1, 2020. Changes to the Company's accounting policy resulting from the adoption of the guidance are discussed below.

Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement

In ~~February 2016,~~August 2018, the FASB issued ASU ~~2016-02, "Leases (Topic 842)" that amended previous guidance on lease accounting.~~2018-13 which changes the fair value measurement disclosure requirements of ASC 820 by adding, eliminating and modifying disclosures. The new guidance eliminates (i) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, (ii) the entity's policy for the timing of transfers between levels, and (iii) the entity's valuation process for Level 3 fair value measurements. Additionally, the guidance now requires the ~~recognition~~disclosure of ~~lease assets~~(i) the changes in unrealized gains and ~~lease liabilities by lessees~~losses in other comprehensive income for ~~those leases classified~~recurring Level 3 fair value measurements, and (ii) the range and weighted average used to develop significant unobservable inputs and how the weighted average was calculated for Level 3 fair value measurements. Finally, the guidance requires entities to provide information about the measurement uncertainty of Level 3 fair value measurements as ~~operating leases under previous GAAP.~~of the reporting date rather than a point in the future. The guidance became effective ~~beginning January 1,~~for annual reporting periods after December 15, 2019 and it did not have a material impact on the Company's results of operations, consolidated financial position or cash flows.

Table of Contents

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Notes to Condensed Consolidated Financial Statements, Continued (Unaudited)

Pending Adoption of Recent Accounting Pronouncements

Income Taxes - Simplifying the Accounting for Income Taxes

In December 2019, the FASB issued ASU 2019-12 which updated guidance for the accounting for income taxes. The updated guidance is intended to simplify the accounting for income taxes by removing several exceptions contained in existing guidance and amending other existing guidance to simplify several other income tax accounting matters. The effective date of ASU 2019-12 is for interim and annual periods beginning after December 15, 2020. Early adoption is permitted. The ASU has not yet been adopted; however, it is not expected to have a material impact on the Company’s results of operations, consolidated financial position or cash flows. ~~The Company has elected the practical expedients contained in ASC 842-10-65-1(f) and therefore did not reassess the lease classification of its existing leases.~~

~~Pending Adoption of Recent Accounting Pronouncements~~

For information regarding other accounting pronouncements that the Company has not yet adopted, see the “Pending Adoption of Recent Accounting Pronouncements” section of Note 1 of the Notes to Consolidated Financial Statements in the ~~2018~~2019 Form 10-K.

Significant Accounting Policy Updates

The following accounting policies have been updated to reflect the Company's adoption of ASU 2016-13 Financial Instruments - Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instrumentsas described above.

Investments

Investments in fixed maturities are classified as available-for-sale and are carried at fair value. For fixed maturities in an unrealized loss position, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

Changes in the allowance for credit losses are recorded in the "net investment gain (loss)" line item on the condensed consolidated statement of income. Losses are charged against the allowance when management believes the uncollectibility of a fixed maturity is confirmed or when either of the criteria regarding intent or requirement to sell is met. Description and disclosure of credit losses on fixed maturities are disclosed in Note 3 of the Notes to Condensed Consolidated Financial Statements.

The Company excludes accrued interest receivable from both the estimated fair value and the amortized cost basis of available-for-sale fixed maturities and includes such amounts within "accrued investment income and other assets" on the Company's condensed consolidated balance sheets. Any uncollectible accrued interest receivable is written off in the period it is deemed uncollectible.

Reinsurance Recoverables

Management assesses expected credit losses on third party reinsurance recoverables for the entire State Auto Pool and, pursuant to the Pooling Arrangement (as defined in Note 7), the Company is responsible for its share of the estimated uncollectible reinsurance for the entire pool. Management uses A.M. Best’s Financial Strength ratings or equivalent such as S&P, Moody’s, or Fitch when an A.M. Best Financial Strength rating is not available to assess the credit risk of the reinsurance recoverables. The estimate of expected credit losses considers historical credit loss information as well as current conditions and reasonable and supportable forecasts. Description and disclosure of credit losses on reinsurance recoverables are disclosed in Note 8 of the Notes to Condensed Consolidated Financial Statements.

Premiums

Premiums are recognized as earned pro rata over the policy period. Unearned premiums represent the portion of premiums written relative to the unexpired terms of coverage.

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. When settling the intercompany balances, State Auto Mutual provides the pool participants with full credit for their share of the Pooled Companies net premiums written during the quarter.

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STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Notes to Condensed Consolidated Financial Statements, Continued (Unaudited)

Management utilizes an aging schedule to estimate an allowance for uncollectible amounts relating to the State Auto Group’s premiums receivable balance. Current and historical collection experience along with reasonable and supportable forecasts are used to estimate the percentage of the premiums receivable balance that will be uncollectible. 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 receivable 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 the Company's condensed consolidated balance sheets. The Company’s share of the premium balances due to State Auto Mutual from agents and insureds at September 30, 2020 and December 31, 2019 is approximately $404.8 million and $371.0 million, respectively, net of the allowance for uncollectible premiums receivable of $7.0 million and $4.3 million, respectively.

2. ~~Investments~~Correction of Misstatement in Prior Period Financial Statements

The Company has corrected the presentation of premiums receivable on its condensed consolidated balance sheet for the period ended December 31, 2019 to appropriately reflect outstanding balances for premiums billed and due on premiums written directly by the STFC Pooled Companies. Based on the Pooling Arrangement (as defined in Note 7), this has no impact on the underwriting operations of the STFC Pooled Companies given the role of State Auto Mutual as agent for the State Auto Group.

The Company's balance sheet has been revised to include "premiums receivable", which represents the billed and due premium from its policyholders, with an offsetting adjustment to "due to/from affiliates". This adjustment was not material to the Company’s previously issued financial statements.

The effect of the revisions on the Company's previously issued financial statements are provided in the tables below. Amounts throughout the consolidated financial statements and notes thereto have been adjusted to incorporate the revised amounts, where applicable. The following tables ~~set forth~~reconcile selected lines from the ~~cost or amortized cost~~Company’s year-end 2019 consolidated balance sheet and ~~fair value~~the condensed consolidated statements of ~~investments by lot at~~cash flows for the nine months ended September 30, 2019 from the previously reported amounts to the revised amounts. There were no changes to the condensed consolidated statements of income, condensed consolidated statements of comprehensive income, and ~~December 31, 2018:~~condensed consolidated statements of stockholders' equity.


Revised Consolidated Balance Sheets
($ in millions)	Year Ended December 31, 2019
	As Reported		Adjustment		As Revised
Assets
Premiums receivable	$	0	$	13.6	$	13.6
Due from affiliate	21.5		(13.6)		7.9
Total Assets	$	2,985.4	$	0	$	2,985.4


Revised Consolidated Statement of Cash Flows
($ in millions)	Nine months ended September 30, 2019
	As Reported		Adjustment		As Revised
Cash flows from operating activities:
Changes in operating assets and liabilities:
Premiums receivable	$	0	$	(3.2)	$	(3.2)
Other liabilities and due to/from affiliates, net	(55.0)		3.2		(51.8)
Net cash used in operating activities	$	(43.9)	$	0	$	(43.9)

($ millions) Cost or amortized cost Gross unrealized holding gains Gross unrealized holding losses Fair value
September 30, 2019
Available-for-sale fixed maturities:
U.S. treasury securities and obligations of U.S. government agencies $ 516.4
$ 14.8
$ (1.2 ) $ 530.0
Obligations of states and political subdivisions 415.3
21.8
—
437.1
Corporate securities 492.3
10.9
(1.1 ) 502.1
U.S. government agencies mortgage-backed securities 705.0
18.2
(3.1 ) 720.1
Total available-for-sale fixed maturities $ 2,129.0
$ 65.7
$ (5.4 ) $ 2,189.3

($ millions) Cost or amortized cost Gross unrealized holding gains Gross unrealized holding losses Fair value
December 31, 2018
Available-for-sale fixed maturities:
U.S. treasury securities and obligations of U.S. government agencies $ 438.4
$ 3.2
$ (9.2 ) $ 432.4
Obligations of states and political subdivisions 408.2
7.3
(0.9 ) 414.6
Corporate securities 551.7
0.6
(11.7 ) 540.6
U.S. government agencies mortgage-backed securities 789.9
3.3
(21.3 ) 771.9
Total available-for-sale fixed maturities $ 2,188.2
$ 14.4
$ (43.1 ) $ 2,159.5

Table of Contents

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Notes to Condensed Consolidated Financial Statements, Continued (Unaudited)

3. Investments

The following tables set forth the amortized cost and fair value of investments by investment category at September 30, 2020 and December 31, 2019:


($ millions)	Amortized cost		Gross unrealized holding gains		Gross unrealized holding losses		Fair value
September 30, 2020
Available-for-sale fixed maturities:
U.S. treasury securities and obligations of U.S. government agencies	$	510.9	$	48.1	$	0	$	559.0
Obligations of states and political subdivisions	527.5		26.7		(1.5)		552.7
Corporate securities	451.7		21.9		0		473.6
U.S. government agencies mortgage-backed securities	557.0		25.3		(1.3)		581.0
Total available-for-sale fixed maturities	$	2,047.1	$	122.0	$	(2.8)	$	2,166.3

($ millions)	Amortized cost		Gross unrealized holding gains		Gross unrealized holding losses		Fair value
December 31, 2019
Available-for-sale fixed maturities:
U.S. treasury securities and obligations of U.S. government agencies	$	569.2	$	12.3	$	(3.3)	$	578.2
Obligations of states and political subdivisions	404.3		21.1		0		425.4
Corporate securities	460.5		11.7		(0.4)		471.8
U.S. government agencies mortgage-backed securities	646.0		11.1		(4.6)		652.5
Total available-for-sale fixed maturities	$	2,080.0	$	56.2	$	(8.3)	$	2,127.9

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STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Notes to Condensed Consolidated Financial Statements, Continued (Unaudited)

The following tables set forth the Company’s gross unrealized losses and fair value on its investments by lot, aggregated by investment category and length of time for individual securities that have been in a continuous unrealized loss position for which an allowance for credit losses has not been recorded at September 30, 2020:


($ millions, except # of positions)	Less than 12 months					12 months or more					Total
	Fair value		Unrealized losses		Number of positions	Fair value		Unrealized losses		Number of positions	Fair value		Unrealized losses		Number of positions
September 30, 2020
Fixed maturities:
U.S. treasury securities and obligations of U.S. government agencies	$	0.7	$	0	1	$	0	$	0	0	$	0.7	$	0	1
Obligations of states and political subdivisions	94.3		(1.5)		18	0		0		0	94.3		(1.5)		18
Corporate securities	15.1		0		4	0		0		0	15.1		0		4
U.S. government agencies mortgage-backed securities	76.1		(1.1)		22	9.4		(0.2)		4	85.5		(1.3)		26
Total temporarily impaired securities	$	186.2	$	(2.6)	45	$	9.4	$	(0.2)	4	$	195.6	$	(2.8)	49

The following tables set forth the Company’s gross unrealized losses and fair value on its investments by lot, aggregated by investment category and length of time for individual securities that have been in a continuous unrealized loss position at ~~September 30, 2019 and~~ December 31, ~~2018:~~2019:

($ millions, except # of positions) Less than 12 months 12 months or more Total
Fair value Unrealized losses Number of positions Fair value Unrealized losses Number of positions Fair value Unrealized losses Number of positions
September 30, 2019
Fixed maturities:
U.S. treasury securities and obligations of U.S. government agencies $ 41.1
$ (0.1 ) 9
$ 184.5
$ (1.1 ) 16
$ 225.6
$ (1.2 ) 25
Obligations of states and political subdivisions —
—
—
4.1
—
1
4.1
—
1
Corporate securities 20.3
(0.3 ) 2
56.9
$ (0.8 ) 9
77.2
$ (1.1 ) 11
U.S. government agencies mortgage-backed securities 50.9
(0.3 ) 7
161.1
(2.8 ) 35
212.0
(3.1 ) 42
Total temporarily impaired securities $ 112.3
$ (0.7 ) 18
$ 406.6
$ (4.7 ) 61
$ 518.9
$ (5.4 ) 79

($ millions, except # of positions) Less than 12 months 12 months or more Total
Fair value Unrealized losses Number of positions Fair value Unrealized losses Number of positions Fair value Unrealized losses Number of positions
December 31, 2018
Fixed maturities:
U.S. treasury securities and obligations of U.S. government agencies $ 83.1
$ (1.8 ) 7
$ 259.6
$ (7.4 ) 35
$ 342.7
$ (9.2 ) 42
Obligations of states and political subdivisions 63.6
(0.5 ) 7
39.6
(0.4 ) 8
103.2
(0.9 ) 15
Corporate securities 244.0
(3.0 ) 31
189.5
(8.7 ) 30
433.5
(11.7 ) 61
U.S. government agencies mortgage-backed securities 169.5
(2.8 ) 18
385.5
(18.5 ) 70
555.0
(21.3 ) 88
Total temporarily impaired securities $ 560.2
$ (8.1 ) 63
$ 874.2
$ (35.0 ) 143
$ 1,434.4
$ (43.1 ) 206


($ millions, except # of positions)	Less than 12 months					12 months or more					Total
	Fair value		Unrealized losses		Number of positions	Fair value		Unrealized losses		Number of positions	Fair value		Unrealized losses		Number of positions
December 31, 2019
Fixed maturities:
U.S. treasury securities and obligations of U.S. government agencies	$	136.0	$	(2.5)	17	$	157.6	$	(0.8)	11	$	293.6	$	(3.3)	28

Corporate securities	0		0		0	40.8		(0.4)		7	40.8		(0.4)		7
U.S. government agencies mortgage-backed securities	126.6		(1.5)		15	137.9		(3.1)		32	264.5		(4.6)		47
Total temporarily impaired securities	$	262.6	$	(4.0)	32	$	336.3	$	(4.3)	50	$	598.9	$	(8.3)	82

The Company reviewed its ~~investments~~available-for-sale fixed maturities at September 30, ~~2019,~~2020, and determined that no ~~other-than-temporary~~credit impairment ~~("OTTI")~~ existed in the gross unrealized holding ~~losses.~~losses, due to the reasons discussed below:

•Obligations of U.S. government agencies: These securities were issued by the U.S. Treasury Department or Federal government-sponsored entities. The decline in fair values was attributable to changes in interest rates and not credit quality. The Company does not intend to sell these securities and it is likely that it will not do so before their anticipated recovery. Therefore, the Company does not consider these impaired securities.

•U.S. government agencies mortgage-backed securities: Federal government-sponsored entities issued these securities. The decline in fair values was attributable to changes in interest rates and not credit quality. The Company does not intend to sell these securities and it is likely that it will not do so before their anticipated recovery. Therefore, the Company does not consider these impaired securities.

The Company regularly monitors its available-for-sale ~~investments~~fixed maturities that have fair values less than cost or amortized cost for signs of ~~other-than-temporary~~ impairment, an assessment that requires significant management judgment regarding the evidence known. Such judgments could change in the future as more information becomes known, which could negatively impact the amounts reported. Among the factors that management considers for fixed maturity securities are the ~~financial condition~~extent to which fair value is less than amortized cost, any changes to the rating of the ~~issuer including receipt of scheduled principal~~security by a rating agency, and ~~interest cash flows, and intent~~adverse conditions specifically related to ~~sell, including if it is more likely than not that~~ the ~~Company will be required to sell the investments before recovery.~~security, among other factors. When a fixed maturity has been determined to have an ~~other-than-temporary~~ impairment, the impairment charge ~~is separated into an amount~~ representing the credit loss ~~which~~ is recognized in earnings as a realized loss and on the ~~amount related to non-credit factors, which is recognized in accumulated other comprehensive income.~~balance sheet as an allowance for credit losses netted with the amortized cost of fixed maturities. Future increases ~~or decreases~~ in fair value, if ~~not other-than-temporary,~~related to credit factors, are ~~included in accumulated other comprehensive income.~~

recognized

Table of Contents

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Notes to Condensed Consolidated Financial Statements, Continued (Unaudited)

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 income.

The following table sets forth the amortized cost and fair value of available-for-sale fixed maturities by contractual maturity at September 30, ~~2019:~~2020:

($ millions) Amortized cost
Fair
value
Due in 1 year or less $ 55.7
$ 56.6
Due after 1 year through 5 years 562.7
569.4
Due after 5 years through 10 years 239.9
249.7
Due after 10 years 565.7
593.5
U.S. government agencies mortgage-backed securities 705.0
720.1
Total $ 2,129.0
$ 2,189.3


($ millions)	Amortized cost		Fair value
Due in 1 year or less	$	119.8	$	120.9
Due after 1 year through 5 years	519.9		548.0
Due after 5 years through 10 years	168.0		178.9
Due after 10 years	682.4		737.5
U.S. government agencies mortgage-backed securities	557.0		581.0
Total	$	2,047.1	$	2,166.3

Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay the obligations with or without call or prepayment penalties.

At September 30, ~~2019,~~2020, State Auto P&C had U.S. government agencies mortgage-backed fixed maturity securities, with a carrying value of approximately $106.5 million ~~that were~~ pledged as collateral for loans from the ~~FHLB Loans (as defined~~Federal Home Loan Bank of Cincinnati ("FHLB"), which loans are further described in Note ~~3).~~9. In accordance with the terms of the FHLB Loans, State Auto P&C retains all rights regarding these pledged securities.

At September 30, ~~2019,~~2020, State Auto P&C had fixed maturities with fair values of approximately ~~$23.2~~$31.7 million pledged as collateral for the performance obligations under its reinsurance agreement with Home State County Mutual Insurance Company. In accordance with the terms of the trust agreement, State Auto P&C retains all rights regarding these securities, which are included in the “U.S. treasury securities and obligations of U.S. government agencies” classification of the Company’s fixed maturity securities portfolio.

Fixed maturities with fair values of ~~$9.3~~$9.6 million and ~~$8.9~~$9.3 million were on deposit with insurance regulators as required by law at September 30, ~~2019,~~2020, and December 31, ~~2018,~~2019, respectively. The Company retains all rights regarding these securities.

The following table sets forth the components of net investment income for the three and nine months ended September 30, ~~2019~~2020 and ~~2018:~~2019:

($ millions) Three months ended September 30 Nine months ended September 30
2019 2018 2019 2018
Fixed maturities $ 15.3
$ 16.4
$ 47.7
$ 49.4
Equity securities 3.0
3.0
8.9
8.6
Cash and cash equivalents, and other 1.1
1.7
4.2
5.2
Investment income 19.4
21.1
60.8
63.2
Investment expenses 0.1
0.3
0.4
1.0
Net investment income $ 19.3
$ 20.8
$ 60.4
$ 62.2


($ millions)	Three months ended September 30				Nine Months Ended September 30
	2020		2019		2020		2019
Fixed maturities	$	15.0	$	15.3	$	44.6	$	47.7
Equity securities	2.1		3.0		7.8		8.9
Cash and cash equivalents, and other	0.9		1.1		2.7		4.2
Investment income	18.0		19.4		55.1		60.8
Investment expenses	0.1		0.1		0.6		0.4
Net investment income	$	17.9	$	19.3	$	54.5	$	60.4

The Company’s current investment strategy does not rely on the use of derivative financial instruments.

Proceeds on sales of investments were ~~$284.1~~$303.2 million and ~~$159.9~~$284.1 million for the nine months ended September 30, ~~2019,~~2020, and ~~2018,~~2019, respectively.

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STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Notes to Condensed Consolidated Financial Statements, Continued (Unaudited)

The following table sets forth the realized and unrealized holding gains (losses) on the Company’s investment portfolio for the three and nine months ended September 30, ~~2019~~2020 and ~~2018:~~2019:

($ millions) Three months ended September 30 Nine months ended September 30
2019 2018 2019 2018
Investment gains (losses), net:
Fixed maturities:
Realized gains on sales of securities 1.2
—
2.8
1.7
Net gains on fixed maturities 1.2
—
2.8
1.7
Equity securities:
Realized (losses) gains on sales of securities, net (1.8 ) 1.0
(2.5 ) 5.4
Unrealized (losses) gains on securities still held, net (4.1 ) 16.4
46.4
12.8
Net (losses) gains on equity securities (5.9 ) 17.4
43.9
18.2
Other invested assets:
Unrealized (losses) gains on securities still held, net (0.3 ) 0.4
4.8
(1.7 )
Net (losses) gains on other invested assets (0.3 ) 0.4
4.8
(1.7 )
Other net realized loss —
—
(1.3 ) —
Net (losses) gains on investments $ (5.0 ) $ 17.8
$ 50.2
$ 18.2

Change in unrealized holding gains (losses), net of tax:
Fixed maturities $ 21.4
$ (14.7 ) $ 89.0
$ (63.3 )
Deferred federal income tax (liability) benefit (4.5 ) 3.1
(18.7 ) 13.3
Change in net unrealized holding gains (losses), net of tax $ 16.9
$ (11.6 ) $ 70.3
$ (50.0 )


($ millions)	Three months ended September 30				Nine Months Ended September 30
	2020		2019		2020		2019
Investment gain (loss), net:
Fixed maturities:
Realized gains on sales of securities	$	1.3	$	1.2	$	6.8	$	2.8
Realized losses on sales of securities	(1.5)		0		(3.6)		0
Net (loss) gain on fixed securities	(0.2)		1.2		3.2		2.8
Equity securities:
Realized losses on sales of securities, net	(42.3)		(1.8)		(50.9)		(2.5)
Unrealized gain (loss) on securities still held, net	60.5		(4.1)		15.8		46.4
Net gain (loss) on equity securities	18.2		(5.9)		(35.1)		43.9
Other invested assets:

Unrealized gain (loss) on securities still held, net	2.0		(0.3)		(7.6)		4.8
Net gain (loss) on other invested assets	2.0		(0.3)		(7.6)		4.8
Other net realized gain (loss)	0		0		0.2		(1.3)
Net gain (loss) on investments	$	20.0	$	(5.0)	$	(39.3)	$	50.2

Change in net unrealized holding gains, net of tax
Fixed maturities	$	4.8	$	21.4	$	71.3	$	89.0
Deferred federal income tax liability	(1.1)		(4.5)		(15.0)		(18.7)
Change in net unrealized holding gains, net of tax	$	3.7	$	16.9	$	56.3	$	70.3

3.4. Fair Value of Financial Instruments

Below is the fair value hierarchy that categorizes into three levels the inputs to valuation techniques that are used to measure fair value:

•Level 1 includes observable inputs which reflect quoted prices for identical assets or liabilities in active markets at the measurement date.

•Level 2 includes observable inputs for assets or liabilities other than quoted prices included in Level 1, and it includes valuation techniques which use prices for similar assets and liabilities.

•Level 3 includes unobservable inputs which reflect the reporting entity’s estimates of the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).

The Company utilizes a nationally recognized third party pricing service to estimate the majority of its investment portfolio’s fair value. The Company obtains one price per security and the processes and control procedures employed by the Company are designed to ensure the value is accurately recorded on an unadjusted basis. Through discussions with the pricing service, the Company gains 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, the Company compares to fair value pricing information gathered from other independent pricing sources. At September 30, ~~2019,~~2020, and December 31, ~~2018,~~2019, the Company did not adjust any of the prices received from the pricing service.

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STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Notes to Condensed Consolidated Financial Statements, Continued (Unaudited)

Fixed Maturities

The Company utilizes a nationally recognized third party pricing service to estimate fair value measurements for the majority of its fixed maturities. The fair value estimate of the Company’s fixed maturity investments are determined by evaluations that are based on observable market information rather than market quotes. Inputs to the evaluations include, but are not limited to, market prices from recently completed transactions and transactions of comparable securities, interest rate yield curves, credit spreads, and other market-observable information. The fixed maturity portfolio pricing obtained from the pricing service is reviewed for reasonableness. The Company regularly selects a sample of security prices which are compared to one or more alternative pricing sources for reasonableness. Any significant discrepancies with the pricing are returned to the pricing service for further explanation and, if necessary, adjustments are made. To date, the Company has not identified any significant discrepancies in the pricing provided by its third party pricing service. Investments valued using these inputs include U.S. treasury securities and obligations of U.S. government agencies, obligations of states and political subdivisions, corporate securities (except for a security discussed below), and U.S. government agencies' mortgage-backed securities. All unadjusted estimates of fair value for fixed maturities priced by the pricing service are included in the amounts disclosed in Level 2 of the hierarchy. If market inputs are unavailable, then no fair value is provided by the pricing service. For these securities, fair value is determined either by requesting brokers who are knowledgeable about these securities to provide a quote; or the Company internally determines the fair values by employing widely accepted pricing valuation models, and depending on the level of observable market inputs, renders the fair value estimate as Level 2 or Level 3.

Transfers between level categorizations may occur due to changes in the availability of market observable inputs. Transfers in and out of level categorizations are reported as having occurred at the beginning of the quarter in which the transfer occurred.

Equities

The fair value of each equity security is based on an observable market price for an identical asset in an active market and is priced by the same pricing service discussed above. All equity securities are recorded using unadjusted market prices and have been disclosed in Level 1.

Other Invested Assets

Included in other invested assets is 1 international fund (“the fund”) that invests in equity securities of foreign issuers and is managed by a third party investment manager. The fund had a fair value of ~~$51.7~~$48.5 million and ~~$38.5~~$56.4 million at September 30, ~~2019,~~2020, and December 31, ~~2018,~~2019, respectively, which was determined using the fund’s net asset value. The Company employs procedures to assess the reasonableness of the fair value of the fund, including obtaining and reviewing the fund’s audited financial statements. There are no unfunded commitments related to the fund. The Company may not sell its investment in the fund; however, the Company may redeem all or a portion of its investment in the fund at net asset value per share with the appropriate prior written notice. In accordance with ~~Accounting Standard Codification~~ASC 820-10, this investment is measured at fair value using the net asset value per share practical expedient and has not been classified in the fair value hierarchy. Fair values presented here are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the condensed consolidated balance sheets.

The remainder of the Company’s other invested assets consist primarily of holdings in publicly-traded mutual funds. The Company believes that its prices for these publicly-traded mutual funds based on an observable market price for an identical asset in an active market reflect their fair values and consequently these securities have been disclosed in Level 1.

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STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Notes to Condensed Consolidated Financial Statements, Continued (Unaudited)

The following tables set forth the Company’s investments within the fair value hierarchy at September 30, ~~2019~~2020 and December 31, ~~2018:~~2019:

($ millions) Total Level 1 Level 2
September 30, 2019
Available-for-sale fixed maturities:
U.S. treasury securities and obligations of U.S. government agencies $ 530.0
$ —
$ 530.0
Obligations of states and political subdivisions 437.1
—
437.1
Corporate securities 502.1
—
502.1
U.S. government agencies mortgage-backed securities 720.1
—
720.1
Total available-for-sale fixed maturities 2,189.3
—
2,189.3
Equity securities:
Large-cap securities 99.1
99.1
—
Mutual and exchange traded funds 274.2
274.2
—
Total equity securities 373.3
373.3
—
Other invested assets 12.9
12.9
—
Total investments $ 2,575.5
$ 386.2
$ 2,189.3

($ millions) Total Level 1 Level 2
December 31, 2018
Available-for-sale fixed maturities:
U.S. treasury securities and obligations of U.S. government agencies $ 432.4
$ —
$ 432.4
Obligations of states and political subdivisions 414.6
—
414.6
Corporate securities 540.6
—
540.6
U.S. government agencies mortgage-backed securities 771.9
—
771.9
Total available-for-sale fixed maturities 2,159.5
—
2,159.5
Equity securities:
Large-cap securities 77.2
77.2
—
Mutual and exchange traded funds 237.8
237.8
—
Total equity securities 315.0
315.0
—
Other invested assets 10.3
10.3
—
Total investments $ 2,484.8
$ 325.3
$ 2,159.5


($ millions)	Total		Level 1		Level 2
September 30, 2020
Available-for-sale fixed maturities:
U.S. treasury securities and obligations of U.S. government agencies	$	559.0	$	0	$	559.0
Obligations of states and political subdivisions	552.7		0		552.7
Corporate securities	473.6		0		473.6
U.S. government agencies mortgage-backed securities	581.0		0		581.0
Total available-for-sale fixed maturities	2,166.3		0		2,166.3
Equity securities:
Large-cap securities	120.0		120.0		0

Mutual and exchange traded funds	219.5		219.5		0
Total equity securities	339.5		339.5		0
Other invested assets	14.0		14.0		0
Total investments	$	2,519.8	$	353.5	$	2,166.3

($ millions)	Total		Level 1		Level 2
December 31, 2019
Available-for-sale fixed maturities:
U.S. treasury securities and obligations of U.S. government agencies	$	578.2	$	0	$	578.2
Obligations of states and political subdivisions	425.4		0		425.4
Corporate securities	471.8		0		471.8
U.S. government agencies mortgage-backed securities	652.5		0		652.5
Total available-for-sale fixed maturities	2,127.9		0		2,127.9
Equity securities:
Large-cap securities	104.4		104.4		0

Mutual and exchange traded funds	290.8		290.8		0
Total equity securities	395.2		395.2		0
Other invested assets	13.3		13.3		0
Total investments	$	2,536.4	$	408.5	$	2,127.9

The following sections describe the valuation methods used by the Company for each type of financial instrument it holds that is not measured at fair value but for which fair value is disclosed:

Financial Instruments Disclosed, But Not Carried, At Fair Value

Other Invested Assets, at Cost

Included in other invested assets, at cost are common stock of the ~~Federal Home Loan Bank of Cincinnati (the "FHLB")~~FHLB and the Trust Securities. The Trust Securities and FHLB common stock are carried at cost, which approximates fair value. The fair value of the FHLB common stock at September 30, ~~2019,~~2020, was ~~$6.0~~$12.0 million and the fair value of the Trust Securities was $0.5 million. The investments have been placed in Level 3 of the fair value hierarchy.

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STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Notes to Condensed Consolidated Financial Statements, Continued (Unaudited)

Notes Receivable from Affiliate

In May 2009, the Company entered into 2 separate credit agreements with State Automobile Mutual Insurance Company (“State Auto Mutual") pursuant to which it loaned State Auto Mutual a total of $70.0 million at an interest rate of 7.00%. In May 2019, the Company refinanced the 2 credit agreements with State Auto Mutual at an interest rate of 4.05%, with principal payable in May 2029. The Company estimates the fair value of the notes receivable from affiliate using market quotations for U.S. treasury securities with similar maturity dates and applies an appropriate credit spread. Consequently this has been placed in Level 2 of the fair value hierarchy.

($ millions, except interest rates) September 30, 2019 December 31, 2018
Carrying value Fair value Interest rate Carrying value
Fair
value
Interest rate
Notes receivable from affiliate, May 2009 $ —
$ —
— % $ 70.0
$ 71.1
7.00 %
Notes receivable from affiliate, May 2019 $ 70.0
$ 76.8
4.05 % $ —
$ —
— %


($ millions, except interest rates)	September 30, 2020						December 31, 2019
	Carrying value		Fair value		Interest rate		Carrying value		Fair value		Interest rate
Notes receivable from affiliate, issued May 2019	$	70.0	$	82.4	4.05	%	$	70.0	$	74.6	4.05	%

Notes Payable

Included in notes payable are the FHLB Loans and Subordinated Debentures. The Company estimates the fair value of the FHLB Loans by discounting cash flows using a borrowing rate currently available to the Company for loans with similar terms. The FHLB Loans have been placed in Level 3 of the fair value hierarchy. The carrying amount of the Subordinated Debentures approximates its fair value as the interest rate adjusts quarterly and has been disclosed in Level 3.


($ millions, except interest rates)	September 30, 2020						December 31, 2019
	Carrying value		Fair Value		Interest rate		Carrying value		Fair value		Interest rate
FHLB Loan due 2021: issued $21.5, September 2016 with fixed interest	$	0	$	0	0	%	$	21.5	$	21.5	1.73	%
FHLB Loan due 2030: issued $21.5, September 2020 with fixed interest	21.5		21.8		1.37	%	0		0		0	%
FHLB Loan due 2033: issued $85.0, May 2018 with fixed interest	85.3		108.6		3.96	%	85.3		97.8		3.96	%
Affiliate Subordinated Debentures due 2033: issued $15.5, May 2003 with variable interest	15.2		15.2		4.44	%	15.2		15.2		6.11	%
Total notes payable	$	122.0	$	145.6			$	122.0	$	134.5

($ millions, except interest rates) September 30, 2019 December 31, 2018
Carrying value Fair Value Interest rate Carrying value Fair value Interest rate
FHLB Loan due 2021: issued $21.5, September 2016 with fixed interest $ 21.5
$ 21.5
1.73 % $ 21.5
$ 20.9
1.73 %
FHLB Loan due 2033: issued $85.0, May 2018 with fixed interest 85.3
100.1
3.96 % 85.3
89.0
3.96 %
Affiliate Subordinated Debentures due 2033: issued $15.5, May 2003 with variable interest 15.2
15.2
6.33 % 15.2
15.2
6.94 %
Total notes payable $ 122.0
$ 136.8
$ 122.0
$ 125.1

5. Deferred Acquisition Costs

The following table sets forth net deferred acquisition costs for the three and nine months ended September 30, 2020 and 2019:


($ millions)	2020		2019
Beginning balance at July 1	$	120.0	$	109.1
Acquisition costs deferred	98.4		94.6
Acquisition costs amortized to expense	(94.7)		(89.4)
Ending balance at September 30	$	123.7	$	114.3

Beginning balance at January 1	$	111.1	$	101.9
Acquisition costs deferred	289.8		270.6
Acquisition costs amortized to expense	(277.2)		(258.2)
Ending balance at September 30	$	123.7	$	114.3

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STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Notes to Condensed Consolidated Financial Statements, Continued (Unaudited)

4.6. Losses and Loss Expenses Payable

The following table sets forth the activity in the liability for losses and loss expenses for the nine months ended September 30, ~~2019~~2020 and ~~2018:~~2019:

($ millions) 2019 2018
Losses and loss expenses payable, at beginning of period $ 1,146.8
$ 1,255.6
Less: reinsurance recoverable on losses and loss expenses payable 5.5
3.1
Net balance at beginning of period 1,141.3
1,252.5
Incurred related to:
Current year 692.7
678.7
Prior years (55.1 ) (57.6 )
Total incurred 637.6
621.1
Paid related to:
Current year 366.4
314.1
Prior years 327.0
365.8
Total paid 693.4
679.9
Net balance at end of period 1,085.5
1,193.7
Plus: reinsurance recoverable on losses and loss expenses payable 7.2
5.0
Losses and loss expenses payable, at end of period $ 1,092.7
$ 1,198.7


($ millions)	2020		2019
Losses and loss expenses payable, at beginning of period	$	1,066.5	$	1,146.8
Less: reinsurance recoverable on losses and loss expenses payable	13.6		5.5
Net balance at beginning of period	1,052.9		1,141.3
Incurred related to:
Current year	779.8		692.7
Prior years	(17.6)		(55.1)
Total incurred	762.2		637.6
Paid related to:
Current year	420.8		366.4
Prior years	338.2		327.0
Total paid	759.0		693.4
Net balance at end of period	1,056.1		1,085.5
Plus: reinsurance recoverable on losses and loss expenses payable	35.2		7.2
Losses and loss expenses payable, at end of period	$	1,091.3	$	1,092.7

The Company recorded less favorable development related to prior years’ loss and loss expense reserves for the nine months ended September 30, ~~2019,~~2020, of ~~$55.1~~$17.6 million compared to ~~favorable development of $57.6~~$55.1 million for the same ~~2018~~2019 period. Favorable development of prior accident years' non-catastrophe loss and ALAE reserves for the nine months ended September 30, 2020 was $31.8 million, due to favorable development in the commercial insurance segment. In the commercial insurance segment, all products developed favorably, with small commercial package, workers' compensation, and middle market commercial contributing $16.5 million, $16.1 million, and $14.3 million, respectively. Partially offsetting the favorable development was adverse development in the personal insurance segment and specialty run-off, which contributed $20.2 million and $5.2 million, respectively. The adverse development in the personal insurance segment was primarily driven by personal auto, which contributed $19.1 million of adverse development. The personal auto adverse development was driven by higher than expected severity of bodily injury claims from multiple accident years. The specialty run-off adverse development primarily related to an adverse court decision relating to an E&S casualty claim from 2016. Partially offsetting the favorable development of prior years' non-catastrophe loss and ALAE reserves was adverse development in catastrophe loss and ALAE reserves driven by $12.4 million of adverse development in E&S property related to Hurricane Irma.

For the nine months ended September 30, 2019, favorable development of prior accident year's non-catastrophe loss and ALAE reserves was $54.1 million. In the personal insurance segment, personal auto contributed $11.0 million of favorable development. In the commercial insurance segment, all lines contributed favorable development, with workers' compensation, small commercial package, and middle market commercial contributing $13.4 million, $11.8 million, and $7.2 million, respectively.

For the nine months ended September 30, 2018, favorable development of prior accident years' non-catastrophe loss and ALAE reserves was primarily due to $56.4 million of favorable development in the personal and commercial insurance segments. In the personal insurance segment, personal auto contributed $18.5 million of favorable development and homeowners contributed $7.2 million of favorable development. In the commercial insurance segment all lines contributed favorable development, with workers' compensation, small commercial package and commercial auto contributing $8.4 million, $6.5 million, and $5.7 million, respectively. Slightly offsetting the favorable development was adverse development in the specialty insurance segment of $4.1 million. The specialty insurance segment was impacted by $3.4 million and $0.9 million of adverse development in E&S casualty and programs, respectively.

5.7. Reinsurance

The insurance subsidiaries of State Auto Financial, ~~including State Auto P&C, Milbank and SA Ohio (collectively~~ referred to as the ~~“STFC~~STFC Pooled ~~Companies”)~~Companies, participate in a quota share reinsurance pooling arrangement (“the Pooling Arrangement”) with ~~State Auto~~the Mutual ~~and its subsidiaries and affiliates (collectively referred to as the “Mutual~~ Pooled ~~Companies”).~~

Companies.

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STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Notes to Condensed Consolidated Financial Statements, Continued (Unaudited)

The following table sets forth a summary of the Company’s external reinsurance transactions, as well as reinsurance transactions with State Auto Mutual under the Pooling Arrangement, for the three and nine months ended September 30, ~~2019~~2020 and ~~2018:~~2019:


($ millions)	Three months ended September 30				Nine months ended September 30
	2020		2019		2020		2019
Premiums earned:
Assumed from external insurers and reinsurers	$	21.7	$	21.0	$	63.0	$	59.3
Assumed under Pooling Arrangement	353.2		319.6		1,024.4		930.0
Ceded to external insurers and reinsurers	(7.7)		(6.6)		(25.4)		(18.8)
Ceded under Pooling Arrangement	(283.9)		(263.9)		(835.2)		(761.5)
Net assumed premiums earned	$	83.3	$	70.1	$	226.8	$	209.0
Losses and loss expenses incurred:
Assumed from external insurers and reinsurers	$	14.1	$	14.6	$	41.3	$	45.6
Assumed under Pooling Arrangement	251.6		209.3		762.2		639.4
Ceded to external insurers and reinsurers	(9.9)		(0.6)		(55.9)		(6.2)
Ceded under Pooling Arrangement	(202.9)		(185.1)		(629.4)		(514.3)
Net assumed losses and loss expenses incurred	$	52.9	$	38.2	$	118.2	$	164.5

8. Current Expected Credit Losses

The Company is 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, the Company is also exposed to credit risk on amounts due from insureds and agents through the Pooling Arrangement. 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 and retains all receivable amounts from insureds and agents and reinsurance recoverable on paid losses from unaffiliated reinsurers.

At September 30, 2020, the determination of the allowance for credit losses for premiums receivable and reinsurance recoverables included considerations for the potential impacts of the COVID-19 pandemic on the Company's ability to collect balances due from its insureds, agents, and reinsurers.

Reinsurance recoverables

The State Auto Group monitors the credit quality of its reinsurance recoverables through the use of A.M. Best’s Financial Strength rating ("FSR"), or in the absence of an FSR consideration of credit ratings issued by approved rating agencies such as S&P, Moody’s, or Fitch. At September 30, 2020, the determination of the allowance for credit losses on reinsurance recoverables included analysis of (i) reinsurance recoverable balances by reinsurer FSR, (ii) estimated payment patterns associated with the claims underlying the reinsurance balances and (iii) historical default rates by reinsurer FSR as published by A.M. Best. In addition to the quantitative analysis, qualitative factors considered include but are not limited to (i) global reinsurer capital level, (ii) reinsurance market trends, (iii) the low interest rate environment and (iv) the stressed global economy, including the impact of COVID-19. The allowance for credit losses is included in the "reinsurance recoverables on losses and loss expenses payable" and "losses and loss expenses payable" line items in the Company's condensed consolidated balance sheets. The Company’s allowance for credit losses for reinsurance recoverables at September 30, 2020 is $0.8 million.

($ millions) Three months ended September 30 Nine months ended September 30
2019 2018 2019 2018
Premiums earned:
Assumed from external insurers and reinsurers $ 21.0
$ 17.3
$ 59.3
$ 41.9
Assumed under Pooling Arrangement 319.6
306.8
930.0
929.2
Ceded to external insurers and reinsurers (6.6 ) (5.9 ) (18.8 ) (16.7 )
Ceded under Pooling Arrangement (263.9 ) (234.9 ) (761.5 ) (678.1 )
Net assumed premiums earned $ 70.1
$ 83.3
$ 209.0
$ 276.3
Losses and loss expenses incurred:
Assumed from external insurers and reinsurers $ 14.6
$ 10.9
$ 45.6
$ 34.2
Assumed under Pooling Arrangement 209.3
191.4
639.4
622.3
Ceded to external insurers and reinsurers (0.6 ) (1.9 ) (6.2 ) (3.4 )
Ceded under Pooling Arrangement (185.1 ) (148.4 ) (514.3 ) (486.0 )
Net assumed losses and loss expenses incurred $ 38.2
$ 52.0
$ 164.5
$ 167.1

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6.STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Notes to Condensed Consolidated Financial Statements, Continued (Unaudited)

The following table sets forth the amortized cost of the Company's direct third-party reinsurance recoverables by FSR, net of the allowance for credit losses, at September 30, 2020:


($ millions)	Amortized Cost
Financial strength rating:
A++	$	1.2
A+	15.3
A	18.7





Reinsurance recoverable on losses and loss expenses payable, net of allowance for credit losses	$	35.2

Premiums Receivables

Management utilizes an aging schedule to estimate an allowance for uncollectible amounts relating to the State Auto Pool premiums receivable balance including the Company's billed and due premium from its policyholders. In addition to reliance upon recent and historical collection trends, determination of the allowance for uncollectible premiums receivable at September 30, 2020 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 a policy if the policyholder does not pay the premium due. Pursuant to the Pooling Arrangement, bad debt expense for uncollectible premiums receivable is allocated to pool members on the basis of pool participation and is included in the quarterly settlement of intercompany balances. Bad debt expense is included in "other expenses" on the condensed consolidated statements of income and reflected in “due to/from affiliates” on the Company's condensed consolidated balance sheets.

The following table sets forth the changes in the Company's share of the allowance for uncollectible premiums receivable for the three and nine months ended September 30, 2020:


($ millions)	Allowance for credit losses
Beginning balance at July 1, 2020	$	7.0
Current period provision	1.1
Writeoffs	(1.1)

Ending balance at September 30, 2020	$	7.0

Beginning balance at January 1, 2020	$	4.3
Current period provision	6.7
Writeoffs	(4.0)

Ending balance at September 30, 2020	$	7.0

9. Notes Payable and Open Line of Credit

FHLB Loans

On September 2, 2020 State Auto P&C retired its five-year term loan with the FHLB in the amount of $21.5 million and maturing September 2, 2021 and replaced it with a new ten-year term loan with the FHLB in the amount of $21.5 million (the "2020 FHLB Loan"). The 2020 FHLB Loan is at a fixed rate of interest of 1.37%, 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 2020 FHLB Loan is fully secured by a pledge of specific investment securities of State Auto P&C.

State Auto P&C has an Open Line of Credit Commitment (the "OLC") with the FHLB that provides State Auto P&C with a $100.0 million one-year open line of credit available for general corporate purposes. The OLC matures in April 2021. 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. As of September 30, 2020, no advances had been made under the OLC.

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STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Notes to Condensed Consolidated Financial Statements, Continued (Unaudited)

On March 19, 2020, State Auto P&C entered into a short-term loan arrangement with the FHLB in the principal amount of $60.0 million. This loan arrangement, known as REPO based advances, was for general corporate purposes and was intended to provide additional liquidity to State Auto P&C. The REPO based advances were repaid in full on September 22, 2020, and this loan arrangement was terminated.

State Auto P&C also has a fifteen-year term loan with the FHLB that is more fully disclosed in Note 8 of the Notes to Consolidated Financial Statements in the 2019 Form 10-K. The foregoing OLC and term loans from the FHLB are collectively referred to as the "FHLB Loans."

10. Income Taxes

Interim Period Tax Expense

Due to an increase in the frequency and severity of catastrophic events in 2020 and the uncertainty regarding the total impact of COVID-19 on the Company's future results of operations and financial condition, the Company's normal approach of using an estimated full-year effective income tax rate to determine interim period tax expense (benefit) produces an income tax benefit for the current year to date period that would have exceeded the tax benefit the Company expects to realize for the full year. Accordingly, the Company calculated a year to date tax benefit based on the year to date loss before federal income taxes using the U.S. Federal statutory tax rate and adjusted for the estimated impact of permanent differences and discrete items. The tax expense for the three months ended September 30, 2020 is the tax benefit for the nine months September 30, 2020 less the tax benefit recognized at June 30, 2020.

The Company has foreign tax credit carryforwards of $0.5 million which will expire in 2021 and 2022. The Company believes it is more likely than not that the benefit from these foreign tax credit carryforwards will not be realized. In recognition of this risk, the Company has provided a valuation allowance of $0.5 million on the deferred tax assets related to these foreign tax credit carryforwards. The valuation allowance is included in the "other, net" line item in the table below.

The following table sets forth the reconciliation between actual federal income tax expense and the amount computed at the indicated statutory rate for the three and nine months ended September 30, ~~2019~~2020 and ~~2018:~~2019:

($ millions) Three months ended September 30 Nine months ended September 30
2019 2018 2019 2018
Amount at statutory rate $ 2.7
21.0 % $ 8.6
21.0 % $ 14.0
21.0 % $ 9.5
21.0 %
Tax-exempt interest and dividends received deduction (0.7 ) (5.3 ) (0.5 ) (1.3 ) (2.1 ) (3.1 ) (1.7 ) (3.8 )
Other, net (0.8 ) (6.3 ) (0.5 ) (1.1 ) 0.1
—
0.3
0.6
Federal income tax expense 1.2
9.4 % 7.6
18.6 % 12.0
17.9 % $ 8.1
17.8 %


($ millions)	Three months ended September 30								Nine months ended September 30
	2020				2019				2020				2019
Amount at statutory rate	$	3.1	21.0	%	$	2.7	21.0	%	$	(18.4)	21.0	%	$	14.0	21.0	%
Tax-exempt interest and dividends received deduction	(0.6)		(4.1)		(0.7)		(5.3)		(1.7)		1.9		(2.1)		(3.1)
Other, net	0.7		4.5		(0.8)		(6.3)		1.2		(1.4)		0.1		0
Federal income tax expense (benefit)	3.2		21.4	%	1.2		9.4	%	(18.9)		21.5	%	$	12.0	17.9	%

7.11. Pension and Postretirement Benefit Plans

The following table sets forth information regarding the Company’s share of pension and postretirement benefit plans’

components of net periodic cost for the three and nine months ended September 30, ~~2019~~2020 and ~~2018:~~2019:

($ millions) Pension Postretirement Pension Postretirement
Three months ended September 30 Nine months ended September 30
2019 2018 2019 2018 2019 2018 2019 2018
Service cost $ 0.8
$ 1.2
$ —
$ —
$ 2.8
$ 3.8
$ —
$ —
Interest cost 2.9
2.7
0.2
0.2
8.6
8.0
0.5
0.5
Expected return on plan assets (4.2 ) (4.5 ) —
—
(12.5 ) (13.5 ) —
—
Amortization of:
Negative prior service cost —
—
(1.4 ) (1.4 ) —
—
(4.1 ) (4.1 )
Net actuarial loss 1.5
2.1
0.1
0.1
4.5
6.2
0.2
0.2
Net periodic cost (benefit) $ 1.0
$ 1.5
$ (1.1 ) $ (1.1 ) $ 3.4
$ 4.5
$ (3.4 ) $ (3.4 )


($ millions)	Pension				Postretirement				Pension				Postretirement
	Three months ended September 30								Nine months ended September 30
	2020		2019		2020		2019		2020		2019		2020		2019
Service cost	$	1.2	$	0.8	$	0	$	0	$	3.6	$	2.8	$	0	$	0
Interest cost	2.4		2.9		0.2		0.2		7.2		8.6		0.4		0.5
Expected return on plan assets	(4.4)		(4.2)		0		0		(13.1)		(12.5)		0		0
Amortization of:
Negative prior service cost	0		0		(1.4)		(1.4)		0		0		(4.1)		(4.1)
Net actuarial loss	2.3		1.5		0.1		0.1		6.9		4.5		0.2		0.2
Net periodic cost (benefit)	$	1.5	$	1.0	$	(1.1)	$	(1.1)	$	4.6	$	3.4	$	(3.5)	$	(3.4)

The Company contributed ~~$10.0~~$15.0 million to its pension plan for the nine months ended September 30, ~~2019.~~

2020.

Table of Contents

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Notes to Condensed Consolidated Financial Statements, Continued (Unaudited)

8.12. Other Comprehensive Income (Loss) and Accumulated Other Comprehensive ~~Loss~~Income (Loss)

The following tables set forth the changes in the Company’s accumulated other comprehensive income (loss) ~~income~~ ("~~AOC(L)I"~~AOCI(L)"), net of tax, for the three and nine months ended September 30, ~~2019~~2020 and ~~2018:~~2019:


($ millions)		Unrealized Gains and Losses on Available-for-Sale Securities		Benefit Plan Items		Total
Beginning balance at July 1, 2020		$	93.0	$	(75.1)	$	17.9
Other comprehensive income before reclassifications		3.5		0		3.5
Amounts reclassified from AOCI (a)		0.2		1.7		1.9
Net current period other comprehensive income		3.7		1.7		5.4
Ending balance at September 30, 2020		$	96.7	$	(73.4)	$	23.3

Beginning balance at July 1, 2019		$	33.2	$	(74.9)	$	(41.7)
Other comprehensive income before reclassifications		17.8		0		17.8
Amounts reclassified from AOCI (a)		(0.9)		0.6		(0.3)
Net current period other comprehensive income		16.9		0.6		17.5
Ending balance at September 30, 2019		$	50.1	$	(74.3)	$	(24.2)

(a)	See separate table below for details about these reclassifications

($ millions)

Unrealized Gains
and Losses on
Available-for-Sale
Securities
Benefit Plan Items Total
Beginning balance at July 1, 2019 $ 33.2
$ (74.9 ) $ (41.7 )
Other comprehensive income before reclassifications 17.8
—
17.8
Amounts reclassified from AOCI ^(a)
(0.9 ) 0.6
(0.3 )
Net current period other comprehensive income 16.9
0.6
17.5
Ending balance at September 30, 2019 $ 50.1
$ (74.3 ) $ (24.2 )

Beginning balance at July 1, 2018 $ (20.3 ) $ (75.5 ) $ (95.8 )
Other comprehensive loss before reclassifications (11.6 ) —
(11.6 )
Amounts reclassified from AOCI ^(a)
—
1.3
1.3
Net current period other comprehensive (loss) income (11.6 ) 1.3
(10.3 )
Ending balance at September 30, 2018 $ (31.9 ) $ (74.2 ) $ (106.1 )

(a) See separate table below for details about these reclassifications


($ millions)		Unrealized Gains and Losses on Available-for-Sale Securities		Benefit Plan Items		Total
Beginning balance at January 1, 2020		$	40.4	$	(78.3)	$	(37.9)
Other comprehensive income before reclassifications		58.8		0		58.8
Amounts reclassified from AOCI (a)		(2.5)		4.9		2.4
Net current period other comprehensive income		56.3		4.9		61.2
Ending balance at September 30, 2020		$	96.7	$	(73.4)	$	23.3

Beginning balance at January 1, 2019		$	(20.2)	$	(76.2)	$	(96.4)

Other comprehensive loss before reclassifications		72.5		0		72.5
Amounts reclassified from AOCI (a)		(2.2)		1.9		(0.3)
Net current period other comprehensive income		70.3		1.9		72.2
Ending balance at September 30, 2019		$	50.1	$	(74.3)	$	(24.2)

(a)	See separate table below for details about these reclassifications

($ millions)

Unrealized Gains
and Losses on
Available-for-Sale
Securities
Benefit Plan Items Total
Beginning balance at January 1, 2019 $ (20.2 ) $ (76.2 ) $ (96.4 )
Other comprehensive income before reclassifications 72.5
—
72.5
Amounts reclassified from AOCI ^(a)
(2.2 ) 1.9
(0.3 )
Net current period other comprehensive income 70.3
1.9
72.2
Ending balance at September 30, 2019 $ 50.1
$ (74.3 ) $ (24.2 )

Beginning balance at January 1, 2018 $ 66.0
$ (62.2 ) $ 3.8
Cumulative effect of change in accounting for equity securities and other invested assets and reclassification of stranded tax effects as of January 1, 2018 (47.9 ) (16.0 ) (63.9 )
Other comprehensive loss before reclassifications (48.7 ) —
(48.7 )
Amounts reclassified from AOCI ^(a)
(1.3 ) 4.0
2.7
Net current period other comprehensive (loss) income (50.0 ) 4.0
(46.0 )
Ending balance at September 30, 2018 $ (31.9 ) $ (74.2 ) $ (106.1 )

(a) See separate table below for details about these reclassifications

Table of Contents

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Notes to Condensed Consolidated Financial Statements, Continued (Unaudited)

The following tables set forth the reclassifications out of accumulated other comprehensive income, by component, to the Company’s condensed consolidated statement of income for the three and nine months ended September 30, ~~2019~~2020 and ~~2018:~~2019:


($ millions)
Details about Accumulated Other		Three months ended September 30				Affected line item in the Condensed
Comprehensive Income Components						Consolidated Statements of Income
		2020		2019
Unrealized gains on available-for-sale fixed maturity investments		$	(0.2)	$	1.2	Realized gain on sale of securities
		(0.2)		1.2		Total before tax
		0		(0.3)		Tax expense
		(0.2)		0.9		Net of tax
Amortization of benefit plan items
Negative prior service cost		1.6		1.6		(b)
Net actuarial loss		(3.7)		(2.4)		(b)
		(2.1)		(0.8)		Total before tax
		0.4		0.2		Tax benefit
		(1.7)		(0.6)		Net of tax
Total reclassifications for the period		$	(1.9)	$	0.3

(b)	These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see pension and postretirement benefit plans footnote for additional details).

($ millions)
Details about Accumulated Other		Nine months ended September 30				Affected line item in the Condensed
Comprehensive Income Components						Consolidated Statements of Income
		2020		2019
Unrealized gains on available-for-sale fixed maturity investments		$	3.2	$	2.8	Realized gains on sale of securities
		3.2		2.8		Total before tax
		(0.7)		(0.6)		Tax expense
		2.5		2.2		Net of tax
Amortization of benefit plan items
Negative prior service cost		4.8		4.8		(b)
Net actuarial loss		(11.0)		(7.2)		(b)
		(6.2)		(2.4)		Total before tax
		1.3		0.5		Tax benefit
		(4.9)		(1.9)		Net of tax
Total reclassifications for the period		$	(2.4)	$	0.3

(b)	These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see pension and postretirement benefit plans footnote for additional details).

($ millions)
Details about Accumulated Other Three months ended September 30 Affected line item in the Condensed
Comprehensive Income Components Consolidated Statements of Income
2019 2018
Unrealized gains on available-for-sale fixed maturity investments $ 1.2
$ —
Realized gains on sale of securities
1.2
—
Total before tax
(0.3 ) —
Tax expense
0.9
—
Net of tax
Amortization of benefit plan items
Negative prior service cost 1.6
1.6
(b)
Net actuarial loss (2.4 ) (3.3 ) (b)
(0.8 ) (1.7 ) Total before tax
0.2
0.4
Tax benefit
(0.6 ) (1.3 ) Net of tax
Total reclassifications for the period $ 0.3
$ (1.3 )

(b) These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see pension and postretirement benefit plans footnote for additional details).

($ millions)
Details about Accumulated Other Nine months ended September 30 Affected line item in the Condensed
Comprehensive Income Components Consolidated Statements of Income
2019 2018
Unrealized gains on available-for-sale fixed maturity investments $ 2.8
$ 1.7
Realized gain on sale of securities
2.8
1.7
Total before tax
(0.6 ) (0.4 ) Tax expense
2.2
1.3
Net of tax
Amortization of benefit plan items
Negative prior service cost 4.8
4.8
(b)
Net actuarial loss (7.2 ) (9.9 ) (b)
(2.4 ) (5.1 ) Total before tax
0.5
1.1
Tax benefit
(1.9 ) (4.0 ) Net of tax
Total reclassifications for the period $ 0.3
$ (2.7 )

(b) These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see pension and postretirement benefit plans footnote for additional details).

Table of Contents

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Notes to Condensed Consolidated Financial Statements, Continued (Unaudited)

9.13. Net Earnings (Loss) per Common Share

The following table sets forth the compilation of basic and diluted earnings (loss) ~~earnings~~ per common share for the three and nine months ended September 30, ~~2019~~2020 and ~~2018:~~2019:

($ and shares in millions, except per share amounts) Three months ended September 30 Nine months ended September 30
2019 2018 2019 2018
Numerator:
Net income for basic earnings per common share $ 11.5
$ 33.4
$ 54.7
$ 37.3
Denominator:
Weighted average shares for basic (loss) earnings per common share 43.5
43.0
43.4
42.8
Effect of dilutive share-based awards 0.5
0.6
0.6
0.5
Adjusted weighted average shares for diluted net (loss) earnings per common share 44.0
43.6
44.0
43.3

Basic net earnings per common share $ 0.26
$ 0.78
$ 1.26
$ 0.87
Diluted net earnings per common share $ 0.25
$ 0.76
$ 1.25
$ 0.86


($ and shares in millions, except per share amounts)	Three months ended September 30				Nine months ended September 30
	2020		2019		2020		2019
Numerator:
Net income (loss) for basic earnings (loss) per common share	$	11.6	$	11.5	$	(68.7)	$	54.7


Denominator:
Weighted average shares for basic earnings (loss) per common share	43.8		43.5		43.7		43.4
Effect of dilutive share-based awards	0.5		0.5		0		0.6
Adjusted weighted average shares for diluted earnings (loss) per common share	44.3		44.0		43.7		44.0

Basic net earnings (loss) per common share	$	0.26	$	0.26	$	(1.57)	$	1.26
Diluted net earnings (loss) per common share	$	0.26	$	0.25	$	(1.57)	$	1.25

The following table sets forth ~~common stock options,~~ stock awards and restricted share units ("RSU award") of the Company that were not included in the computation of diluted earnings (loss) per common share because the exercise price of the ~~options, or~~ awards was greater than the average market price or their inclusion would have been antidilutive for the ~~three and~~ nine months ended September 30, ~~2019 and 2018:~~2020:

(shares in millions) Three months ended September 30 Nine months ended September 30
2019 2018 2019 2018
Total number of antidilutive options and awards —
—
—
0.1

~~Table of Contents~~

~~STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES~~

~~(a majority-owned subsidiary of State Automobile Mutual Insurance Company)~~

~~Notes to Condensed Consolidated Financial Statements, Continued (Unaudited)~~


(shares in millions)	Nine months ended September 30
		2020
Total number of antidilutive awards		0.6

~~10.~~14. Segment Information

The Company changed its reportable segments from four to three effective January 1, 2019. The exit from the specialty insurance business resulted in the elimination of specialty insurance as a reportable segment as it no longer is material to the Company's ~~results and is disclosed as "specialty run-off." The 3 remaining~~ reportable segments are: 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, the 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.

The Company evaluates the performance of its insurance segments using industry financial measurements based on Statutory Accounting Practices (“SAP”), which include loss and loss adjustment expense ratios, underwriting expense ratios, combined ratios, statutory underwriting gain (loss), net premiums earned and net written premiums. One of the most significant differences between SAP and GAAP is that SAP requires all underwriting expenses to be expensed immediately and not deferred and amortized over the same period the premium is earned.

The investment operations segment is evaluated based on investment returns of assets managed by Stateco. Asset information by segment is not reported for the insurance segments because the Company does not produce such information internally.

Table of Contents

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Notes to Condensed Consolidated Financial Statements, Continued (Unaudited)

The following table sets forth financial information regarding the Company’s reportable segments and specialty run-off for the three and nine months ended September 30, ~~2019~~2020 and ~~2018:~~2019:

($ millions) Three months ended September 30 Nine months ended September 30
2019 2018 2019 2018
Revenue from external sources:
Insurance operations
Personal insurance $ 192.7
$ 173.0
$ 562.5
$ 494.2
Commercial insurance 127.0
115.2
361.4
345.7
Specialty run-off (0.1 ) 18.6
6.1
89.3
Total insurance operations 319.6
306.8
930.0
929.2
Investment operations
Net investment income 19.3
20.8
60.4
62.2
Net investment (loss) gain (5.0 ) 17.8
50.2
18.2
Total investment operations 14.3
38.6
110.6
80.4
All other 0.6
0.6
1.6
1.8
Total revenue from external sources 334.5
346.0
1,042.2
1,011.4
Intersegment revenue 1.7
1.6
4.9
4.8
Total revenue 336.2
347.6
1,047.1
1,016.2
Reconciling items:
Eliminate intersegment revenue (1.7 ) (1.6 ) (4.9 ) (4.8 )
Total consolidated revenues $ 334.5
$ 346.0
$ 1,042.2
$ 1,011.4
Segment (loss) income before federal income tax:
Insurance operations SAP underwriting (loss) gain
Personal insurance $ (6.3 ) $ 6.9
$ (32.0 ) $ (4.6 )
Commercial insurance 1.2
(5.2 ) (17.1 ) (22.3 )
Specialty run-off (0.6 ) 1.9
(1.3 ) 4.5
Total insurance operations (5.7 ) 3.6
(50.4 ) (22.4 )
Investment operations
Net investment income 19.3
20.8
60.4
62.2
Net investment (loss) gain (5.0 ) 17.8
50.2
18.2
Total investment operations 14.3
38.6
110.6
80.4
All other —
0.1
0.2
0.3
Total segment income before reconciling items 8.6
42.3
60.4
58.3
Reconciling items:
GAAP expense adjustments 7.2
0.8
17.3
(2.6 )
Interest expense on corporate debt (1.2 ) (1.2 ) (3.7 ) (4.5 )
Corporate expenses (1.9 ) (0.9 ) (7.3 ) (5.8 )
Total reconciling items 4.1
(1.3 ) 6.3
(12.9 )
Total consolidated income before federal income tax $ 12.7
$ 41.0
$ 66.7
$ 45.4


($ millions)	Three months ended September 30				Nine months ended September 30
	2020		2019		2020		2019
Revenue from external sources:
Insurance operations
Personal insurance	$	208.8	$	192.7	$	609.7	$	562.5
Commercial insurance	144.4		127.0		414.7		361.4
Specialty run-off	0		(0.1)		0		6.1
Total insurance operations	353.2		319.6		1,024.4		930.0
Investment operations
Net investment income	17.9		19.3		54.5		60.4
Net investment gain (loss)	20.0		(5.0)		(39.3)		50.2
Total investment operations	37.9		14.3		15.2		110.6
All other	0.5		0.6		1.6		1.6
Total revenue from external sources	391.6		334.5		1,041.2		1,042.2
Intersegment revenue	1.5		1.7		4.6		4.9
Total revenue	393.1		336.2		1,045.8		1,047.1
Reconciling items:
Eliminate intersegment revenue	(1.5)		(1.7)		(4.6)		(4.9)
Total consolidated revenues	$	391.6	$	334.5	$	1,041.2	$	1,042.2
Segment income (loss) before federal income tax:
Insurance operations SAP underwriting (loss) gain
Personal insurance	$	(30.7)	$	(6.3)	$	(70.8)	$	(32.0)
Commercial insurance	14.4		1.2		(28.0)		(17.1)
Specialty run-off	(10.4)		(0.6)		(17.1)		(1.3)
Total insurance operations	(26.7)		(5.7)		(115.9)		(50.4)
Investment operations
Net investment income	17.9		19.3		54.5		60.4
Net investment gain (loss)	20.0		(5.0)		(39.3)		50.2

Total investment operations	37.9		14.3		15.2		110.6
All other	0		0		0.1		0.2
Total segment income (loss) before reconciling items	11.2		8.6		(100.6)		60.4
Reconciling items:
GAAP expense adjustments	5.6		7.2		20.2		17.3
Interest expense on corporate debt	(1.1)		(1.2)		(3.6)		(3.7)
Corporate expenses	(0.9)		(1.9)		(3.6)		(7.3)
Total reconciling items	3.6		4.1		13.0		6.3
Total consolidated income (loss) before federal income tax	$	14.8	$	12.7	$	(87.6)	$	66.7

Investable assets attributable to the Company’s investment operations segment totaled ~~$2,742.0~~$2,782.2 million and ~~$2,658.7~~$2,747.3 million at September 30, ~~2019,~~2020, and December 31, ~~2018,~~2019, respectively.

Table of Contents

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Notes to Condensed Consolidated Financial Statements, Continued (Unaudited)

~~11.~~15. Contingencies and Litigation

In accordance with the Contingencies Topic of the FASB's Accounting Standards Codification, the Company accrues for a litigation-related liability when it is probable that such a liability has been incurred and the amount can be reasonably estimated. The Company reviews all litigation on an ongoing basis when making accrual and disclosure decisions. For certain legal proceedings, the Company cannot reasonably estimate a loss or a range of loss, if any, particularly for proceedings that are in their early stages of development or where the plaintiffs seek indeterminate damages. Various factors, including, but not limited to, the outcome of potentially lengthy discovery and the resolution of important factual questions, may need to be determined before probability can be established or before a loss or range of loss can be reasonably estimated. If the loss contingency in question is not both probable and reasonably estimable, the Company does not establish an accrual and the matter will continue to be monitored for any developments that would make the loss contingency both probable and reasonably estimable. Based on currently available information known to the Company, it believes that its reserves for litigation-related liabilities are reasonable. However, in the event that a legal proceeding results in a substantial judgment against, or settlement by, the Company, there can be no assurance that any resulting liability or financial commitment would not have a material adverse effect on the financial condition, results of operations or cash flows of the consolidated financial statements of the Company.

The Company is involved in lawsuits in the ordinary course of its business arising out of or otherwise related to its insurance policies. Additionally, from time to time the Company may be involved in lawsuits, including class actions, in the ordinary course of business but not arising out of or otherwise related to its insurance policies. Recently, these proceedings have included claims and lawsuits seeking coverage under commercial property policies for pure economic losses related to COVID-19, which our policies were not intended to cover. These lawsuits, which seek to extend coverage beyond the terms and conditions of those policies, are in various stages of ~~development. The~~development, in various jurisdictions, and the Company ~~generally will~~intends to vigorously contest these ~~matters vigorously but may pursue settlement if appropriate.~~matters. Based on currently available information, the Company does not believe ~~it is reasonably possible~~ that any such ~~lawsuit or related~~ lawsuits will ~~be material to its results of operations or~~ have a material adverse effect on its consolidated financial position, results of operations, or cash flows. However, the Company cannot provide assurance that it will not be negatively impacted by adverse legislation or adverse judicial rulings in some of these matters. Future court decisions and interpretations, as well as future changes, if any, in legislation could create uncertainties and additional liabilities may arise which could have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows.

Additionally, the Company may be impacted by adverse regulatory actions and adverse court decisions where insurance coverages are expanded beyond the scope originally contemplated in its insurance policies. The Company believes that the effects, if any, of such regulatory actions and published court decisions are not likely to have a material adverse effect on its consolidated financial position, results of operations or cash flows.

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STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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, ~~2018~~2019 (the ~~“2018~~“2019 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, ~~2019~~2020 and December 31, ~~2018,~~2019, and for the consolidated statements of income for the three and nine month periods ended September 30, ~~2019~~2020 and ~~2018.~~2019. This discussion and analysis should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the ~~2018~~2019 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 ~~2018~~2019 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.

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. 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 ~~2018~~2019 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.

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 ~~2018~~2019 Form 10-K for more information about our insurance segments. AsThe results from our previously ~~disclosed, we stopped writing our~~exited specialty insurance business ~~on a net basis in 2018. As a result, effective January 1, 2019, the specialty insurance business is no longer a reportable segment as it no longer is material to our results and is~~are disclosed as "specialty run-off." Financial information about our reportable segments for ~~2019~~2020 is set forth in Note 1014 of our condensed consolidated financial statements included in Item 1 of this Form 10-Q.

COVID-19

The impact of COVID-19 on our future results of operations and financial condition are highly uncertain at this time and outside of our control. The scope, duration and magnitude of the effects of the on-going COVID-19 pandemic continue to evolve rapidly and in ways that are difficult or impossible to anticipate. For discussions on how COVID-19 affected our operations, see the "Results of Operations" included in this Item 2. For a discussion of the most significant risks and uncertainties that could impact our results of operations, financial position, liquidity or cash flows as a result of the COVID-19 pandemic, see “Part II-Item 1A-Risk Factors” included in this Form 10-Q.

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STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

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

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

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, ~~2019~~2020 and ~~2018:~~2019:


($ millions, except per share amounts)	Three months ended September 30						Nine months ended September 30
	2020			2019			2020			2019
GAAP Basis:
Total revenues	$	391.6		$	334.5		$	1,041.2		$	1,042.2
Income (loss) before federal income taxes	$	14.8		$	12.7		$	(87.6)		$	66.7
Net income (loss)	$	11.6		$	11.5		$	(68.7)		$	54.7
Basic earnings (loss) per share	$	0.26		$	0.26		$	(1.57)		$	1.26
Diluted earnings (loss) per share	$	0.26		$	0.25		$	(1.57)		$	1.25
Stockholders’ equity							$	944.1		$	943.7
Return on average equity (LTM)							(3.8)		%	3.4		%
Book value per share							$	21.57		$	21.68
Debt to capital ratio							11.4		%	11.4		%
Cat loss and ALAE ratio	16.6		%	3.3		%	18.6		%	8.1		%
Non-cat loss and LAE ratio	54.6		%	61.9		%	55.8		%	60.5		%
Loss and LAE ratio	71.2		%	65.2		%	74.4		%	68.6		%
Expense ratio	34.8		%	34.3		%	34.9		%	35.0		%
Combined ratio	106.0		%	99.5		%	109.3		%	103.6		%
Premium written growth	9.3		%	11.0		%	11.3		%	9.0		%
Investment yield	2.8		%	2.9		%	2.9		%	3.0		%

SAP Basis:
Cat loss and ALAE ratio	16.6		%	3.3		%	18.6		%	8.1		%
Non-cat loss and ALAE ratio	49.5		%	56.1		%	49.9		%	54.3		%
ULAE ratio	5.2		%	6.0		%	6.0		%	6.3		%
Loss and LAE ratio	71.3		%	65.4		%	74.5		%	68.7		%
Expense ratio	33.8		%	33.6		%	34.1		%	34.3		%
Combined ratio	105.1		%	99.0		%	108.6		%	103.0		%

($ millions, except per share amounts) Three months ended September 30 Nine months ended September 30
2019 2018 2019 2018
GAAP Basis:
Total revenues $ 334.5
$ 346.0
$ 1,042.2
$ 1,011.4
Income before federal income taxes $ 12.7
$ 41.0
$ 66.7
$ 45.4
Net income $ 11.5
$ 33.4
$ 54.7
$ 37.3
Basic earnings per share $ 0.26
$ 0.78
$ 1.26
$ 0.87
Diluted earnings per share $ 0.25
$ 0.76
$ 1.25
$ 0.86
Stockholders’ equity $ 943.7
$ 831.6

Return on average equity (LTM) 3.4 % 3.7 %
Book value per share $ 21.68
$ 19.36

Debt to capital ratio 11.4 % 12.8 %
Cat loss and ALAE ratio 3.3 % 5.3 % 8.1 % 6.8 %
Non-cat loss and LAE ratio 61.9 % 57.0 % 60.5 % 60.0 %
Loss and LAE ratio 65.2 % 62.3 % 68.6 % 66.8 %
Expense ratio 34.3 % 36.1 % 35.0 % 35.8 %
Combined ratio 99.5 % 98.4 % 103.6 % 102.6 %
Premium written growth 11.0 % (2.8 )% 9.0 % (5.9 )%
Investment yield 2.9 % 3.1 % 3.0 % 3.1 %

SAP Basis:
Cat loss and ALAE ratio 3.3 % 5.3 % 8.1 % 6.8 %
Non-cat loss and ALAE ratio 56.1 % 51.2 % 54.3 % 54.2 %
ULAE ratio 6.0 % 5.9 % 6.3 % 6.0 %
Loss and LAE ratio 65.4 % 62.4 % 68.7 % 67.0 %
Expense ratio 33.6 % 35.8 % 34.3 % 36.1 %
Combined ratio 99.0 % 98.2 % 103.0 % 103.1 %


	Twelve months ended September 30
	2020	2019
Net premiums written to surplus	1.7	1.5

Third Quarter and Year to Date 2020 Overview:

Twelve months ended September 30
2019 2018
Net premiums written to surplus 1.5
1.4
COVID-19

~~Our pre-tax income for~~Beginning in March 2020, the global COVID-19 pandemic has impacted our results of operations. For the 2020 third quarter and year to date, our results were impacted as follows:

•For the three months ended September 30, 2019 was $12.7 million, a decrease of $28.3 million when compared to the same 2018 period. The change was primarily driven by (i) net investment losses of $5.0 million versus net investment gains of $17.8 million and (ii) a slight decline in net underwriting results, due to an increase in non-catastrophe losses, partially offset by an increase in earned premiums and lower catastrophe losses when compared to the same 2018 period.

~~Our pre-tax income for the~~ nine months ended September 30, ~~2019~~2020, net investment gain was ~~$66.7~~$20.0 million ~~an increase~~and net investment loss was $39.3 million, respectively, which included $42.3 million and $50.9 million, respectively, of ~~$21.3~~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 ~~when compared~~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 same 2018 period. The change was primarily driven by net investment gains of $50.2 million compared to net investment gains of $18.2 million, partially offset by a decline in net underwriting results, due to increases in catastrophe and non-catastrophe losses when compared to the same 2018 period.

market volatility caused

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STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

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 non-cat loss and ALAE current accident year 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 Factors

•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.

•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.

Third Quarter and Year to Date 2019 Overview:

•For the three and nine months ended September 30, 2019, net investment losses were $5.0 million and net investment gains were $50.2 million, respectively, which included $4.4 million of unrealized losses and $51.2 million of unrealized gains, respectively, from equity securities and other invested assets.

•The catastrophe loss and ALAE ratios for the three and nine months ended September 30, 2019 were 3.3% and 8.1%, respectively, or $10.6 million and $75.7 million, respectively. The 2019 third quarter and year to date were impacted by severe storms in the South and Midwest. Approximately 50 percent of the year to date catastrophe losses occurred in Texas.

•The SAP non-cat loss and ALAE ratios for the three and nine months ended September 30, 2019 were 56.1% and 54.3%, respectively or $179.0 million and $504.4 million, respectively.

◦The 2019 third quarter and year to date current accident year non-cat loss and ALAE ratios were impacted by non-cat weather losses, primarily wind and hail.

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STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

◦The 2019 third quarter and year to date non-catastrophe losses and ALAE included 5.1 points and 5.8 points, respectively, of favorable development relating to prior years, or $16.1 million and $54.1 million, respectively. For three and nine months ended September 30, 2019, the personal and commercial insurance segments contributed 4.8 points and 5.6 points, respectively, or $15.2 million and $51.7 million, respectively, of favorable development.

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STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

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 our ~~2018~~2019 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 our ~~2018~~2019 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

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

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, ~~2019~~2020 and ~~2018:~~2019:


($ in millions)
Three months ended September 30, 2020	Personal & Commercial			Specialty run-off		Total

Net written premiums	$	379.0		$	0.1	$	379.1
Net earned premiums	353.2			—		353.2
Losses and LAE incurred:
Cat loss and ALAE	46.4			12.3		58.7
Non-cat loss and ALAE
Prior accident years non-cat loss and ALAE	(18.4)			(0.9)		(19.3)
Current accident year non-cat loss and ALAE	194.1			0.2		194.3
Total non-cat loss and ALAE	175.7			(0.7)		175.0
Total Loss and ALAE	222.1			11.6		233.7
ULAE	19.6			(1.3)		18.3
Total Loss and LAE	241.7			10.3		252.0
Underwriting expenses	127.8			0.1		127.9
Net underwriting loss	$	(16.3)		$	(10.4)	$	(26.7)

Cat loss and ALAE ratio	13.1		%	N/M(1)		16.6		%
Non-cat loss and ALAE ratio
Prior accident years non-cat loss and ALAE ratio	(5.2)		%	N/M		(5.5)		%
Current accident year non-cat loss and ALAE ratio	55.1		%	N/M		55.0		%
Total non-cat loss and ALAE ratio	49.9		%	N/M		49.5		%
Total Loss and ALAE ratio	63.0		%	N/M		66.1		%
ULAE ratio	5.5		%	N/M		5.2		%
Total Loss and LAE ratio	68.5		%	N/M		71.3		%
Expense ratio	33.7		%	N/M		33.8		%
Combined ratio	102.2		%	N/M		105.1		%

(1) N/M = Not Meaningful

($ in millions)
Three months ended September 30, 2019 Personal & Commercial Specialty run-off Total

Net written premiums $ 347.2
$ (0.4 ) $ 346.8
Net earned premiums 319.7
(0.1 ) 319.6
Losses and LAE incurred:
Cat loss and ALAE 10.3
0.3
10.6
Non-cat loss and ALAE
Prior accident years non-cat loss and ALAE (15.2 ) (0.9 ) (16.1 )
Current accident year non-cat loss and ALAE 195.0
0.1
195.1
Total non-cat loss and ALAE 179.8
(0.8 ) 179.0
Total Loss and ALAE 190.1
(0.5 ) 189.6
ULAE 19.2
(0.1 ) 19.1
Total Loss and LAE 209.3
(0.6 ) 208.7
Underwriting expenses 115.5
1.1
116.6
Net underwriting loss $ (5.1 ) $ (0.6 ) $ (5.7 )

Cat loss and ALAE ratio 3.2 %
N/M⁽¹⁾

3.3 %
Non-cat loss and ALAE ratio
Prior accident years non-cat loss and ALAE ratio (4.8 )% N/M
(5.1 )%
Current accident year non-cat loss and ALAE ratio 61.0 % N/M
61.2 %
Total non-cat loss and ALAE ratio 56.2 % N/M
56.1 %
Total Loss and ALAE ratio 59.4 % N/M
59.4 %
ULAE ratio 6.0 % N/M
6.0 %
Total Loss and LAE ratio 65.4 % N/M
65.4 %
Expense ratio 33.3 % N/M
33.6 %
Combined ratio 98.7 % N/M
99.0 %

⁽¹⁾N/M = Not Meaningful

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STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)


($ in millions)
Three months ended September 30, 2019	Personal & Commercial			Specialty run-off		Total

Net written premiums	$	347.2		$	(0.4)	$	346.8
Net earned premiums	319.7			(0.1)		319.6
Losses and LAE incurred:
Cat loss and ALAE	10.3			0.3		10.6
Non-cat loss and ALAE
Prior accident years non-cat loss and ALAE	(15.2)			(0.9)		(16.1)
Current accident year non-cat loss and ALAE	195.0			0.1		195.1
Total non-cat loss and ALAE	179.8			(0.8)		179.0
Total Loss and ALAE	190.1			(0.5)		189.6
ULAE	19.2			(0.1)		19.1
Total Loss and LAE	209.3			(0.6)		208.7
Underwriting expenses	115.5			1.1		116.6
Net underwriting loss	$	(5.1)		$	(0.6)	$	(5.7)

Cat loss and ALAE ratio	3.2		%	N/M(1)		3.3		%
Non-cat loss and ALAE ratio
Prior accident years non-cat loss and ALAE ratio	(4.8)		%	N/M		(5.1)		%
Current accident year non-cat loss and ALAE ratio	61.0		%	N/M		61.2		%
Total non-cat loss and ALAE ratio	56.2		%	N/M		56.1		%
Total Loss and ALAE ratio	59.4		%	N/M		59.4		%
ULAE ratio	6.0		%	N/M		6.0		%
Total Loss and LAE ratio	65.4		%	N/M		65.4		%
Expense ratio	33.3		%	N/M		33.6		%
Combined ratio	98.7		%	N/M		99.0		%

(1) N/M = Not Meaningful

($ in millions)
Three months ended September 30, 2018 Personal & Commercial Specialty run-off Total

Net written premiums $ 312.9
$ (0.5 ) $ 312.4
Net earned premiums 288.2
18.6
306.8
Losses and LAE incurred:
Cat loss and ALAE 15.9
0.4
16.3
Non-cat loss and ALAE
Prior accident years non-cat loss and ALAE (19.9 ) 1.8
(18.1 )
Current accident year non-cat loss and ALAE 163.7
11.4
175.1
Total non-cat loss and ALAE 143.8
13.2
157.0
Total Loss and ALAE 159.7
13.6
173.3
ULAE 17.3
0.8
18.1
Total Loss and LAE 177.0
14.4
191.4
Underwriting expenses 109.5
2.3
111.8
Net underwriting gain $ 1.7
$ 1.9
$ 3.6

Cat loss and ALAE ratio 5.5 % 2.2 % 5.3 %
Non-cat loss and ALAE ratio
Prior accident years non-cat loss and ALAE ratio (6.9 )% 9.4 % (5.9 )%
Current accident year non-cat loss and ALAE ratio 56.8 % 62.1 % 57.1 %
Total non-cat loss and ALAE ratio 49.9 % 71.5 % 51.2 %
Total Loss and ALAE ratio 55.4 % 73.7 % 56.5 %
ULAE ratio 6.0 % 3.9 % 5.9 %
Total Loss and LAE ratio 61.4 % 77.6 % 62.4 %
Expense ratio 35.0 % (439.2 )% 35.8 %
Combined ratio 96.4 % (361.6 )% 98.2 %

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STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)


($ in millions)
Nine months ended September 30, 2020	Personal & Commercial			Specialty run-off		Total

Net written premiums	$	1,107.3		$	(0.1)	$	1,107.2
Net earned premiums	1,024.4			—		1,024.4
Losses and LAE incurred:
Cat loss and ALAE	178.6			12.4		191.0
Non-cat loss and ALAE
Prior accident years non-cat loss and ALAE	(37.0)			5.2		(31.8)
Current accident year non-cat loss and ALAE	542.1			0.3		542.4
Total non-cat loss and ALAE	505.1			5.5		510.6
Total Loss and ALAE	683.7			17.9		701.6
ULAE	62.9			(1.3)		61.6
Total Loss and LAE	746.6			16.6		763.2
Underwriting expenses	376.6			0.5		377.1
Net underwriting loss	$	(98.8)		$	(17.1)	$	(115.9)

Cat loss and ALAE ratio	17.4		%	N/M(1)		18.6		%
Non-cat loss and ALAE ratio
Prior accident years non-cat loss and ALAE ratio	(3.6)		%	N/M		(3.1)		%
Current accident year non-cat loss and ALAE ratio	53.0		%	N/M		53.0		%
Total non-cat loss and ALAE ratio	49.4		%	N/M		49.9		%
Total Loss and ALAE ratio	66.8		%	N/M		68.5		%
ULAE ratio	6.1		%	N/M		6.0		%
Total Loss and LAE ratio	72.9		%	N/M		74.5		%
Expense ratio	34.0		%	N/M		34.1		%
Combined ratio	106.9		%	N/M		108.6		%

(1) N/M = Not Meaningful

($ in millions)
Nine months ended September 30, 2019 Personal & Commercial Specialty run-off Total

Net written premiums $ 994.0
$ 0.5
$ 994.5
Net earned premiums 923.9
6.1
930.0
Losses and LAE incurred:
Cat loss and ALAE 71.7
4.0
75.7
Non-cat loss and ALAE
Prior accident years non-cat loss and ALAE (51.7 ) (2.4 ) (54.1 )
Current accident year non-cat loss and ALAE 553.6
4.9
558.5
Total non-cat loss and ALAE 501.9
2.5
504.4
Total Loss and ALAE 573.6
6.5
580.1
ULAE 59.6
(0.8 ) 58.8
Total Loss and LAE 633.2
5.7
638.9
Underwriting expenses 339.8
1.7
341.5
Net underwriting loss $ (49.1 ) $ (1.3 ) $ (50.4 )

Cat loss and ALAE ratio 7.8 %
N/M⁽¹⁾

8.1 %
Non-cat loss and ALAE ratio
Prior accident years non-cat loss and ALAE ratio (5.6 )% N/M
(5.8 )%
Current accident year non-cat loss and ALAE ratio 59.9 % N/M
60.1 %
Total non-cat loss and ALAE ratio 54.3 % N/M
54.3 %
Total Loss and ALAE ratio 62.1 % N/M
62.4 %
ULAE ratio 6.4 % N/M
6.3 %
Total Loss and LAE ratio 68.5 % N/M
68.7 %
Expense ratio 34.2 % N/M
34.3 %
Combined ratio 102.7 % N/M
103.0 %

⁽¹⁾N/M = Not Meaningful

Table of Contents

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)


($ in millions)
Nine months ended September 30, 2019	Personal & Commercial			Specialty run-off		Total

Net written premiums	$	994.0		$	0.5	$	994.5
Net earned premiums	923.9			6.1		930.0
Losses and LAE incurred:
Cat loss and ALAE	71.7			4.0		75.7
Non-cat loss and ALAE
Prior accident years non-cat loss and ALAE	(51.7)			(2.4)		(54.1)
Current accident year non-cat loss and ALAE	553.6			4.9		558.5
Total non-cat loss and ALAE	501.9			2.5		504.4
Total Loss and ALAE	573.6			6.5		580.1
ULAE	59.6			(0.8)		58.8
Total Loss and LAE	633.2			5.7		638.9
Underwriting expenses	339.8			1.7		341.5
Net underwriting loss	$	(49.1)		$	(1.3)	$	(50.4)

Cat loss and ALAE ratio	7.8		%	N/M(1)		8.1		%
Non-cat loss and ALAE ratio
Prior accident years non-cat loss and ALAE ratio	(5.6)		%	N/M		(5.8)		%
Current accident year non-cat loss and ALAE ratio	59.9		%	N/M		60.1		%
Total non-cat loss and ALAE ratio	54.3		%	N/M		54.3		%
Total Loss and ALAE ratio	62.1		%	N/M		62.4		%
ULAE ratio	6.4		%	N/M		6.3		%
Total Loss and LAE ratio	68.5		%	N/M		68.7		%
Expense ratio	34.2		%	N/M		34.3		%
Combined ratio	102.7		%	N/M		103.0		%

(1) N/M = Not Meaningful

($ in millions)
Nine months ended September 30, 2018 Personal & Commercial Specialty run-off Total

Net written premiums $ 898.4
$ 14.3
$ 912.7
Net earned premiums 839.9
89.3
929.2
Losses and LAE incurred:
Cat loss and ALAE 63.4
0.2
63.6
Non-cat loss and ALAE
Prior accident years non-cat loss and ALAE (56.4 ) 4.2
(52.2 )
Current accident year non-cat loss and ALAE 496.0
59.4
555.4
Total non-cat loss and ALAE 439.6
63.6
503.2
Total Loss and ALAE 503.0
63.8
566.8
ULAE 51.0
4.5
55.5
Total Loss and LAE 554.0
68.3
622.3
Underwriting expenses 312.8
16.5
329.3
Net underwriting (loss) gain $ (26.9 ) $ 4.5
$ (22.4 )

Cat loss and ALAE ratio 7.6 % 0.2 % 6.8 %
Non-cat loss and ALAE ratio
Prior accident years non-cat loss and ALAE ratio (6.7 )% 4.6 % (5.6 )%
Current accident year non-cat loss and ALAE ratio 59.0 % 66.6 % 59.8 %
Total non-cat loss and ALAE ratio 52.3 % 71.2 % 54.2 %
Total Loss and ALAE ratio 59.9 % 71.4 % 61.0 %
ULAE ratio 6.1 % 5.0 % 6.0 %
Total Loss and LAE ratio 66.0 % 76.4 % 67.0 %
Expense ratio 34.8 % 115.9 % 36.1 %
Combined ratio 100.8 % 192.3 % 103.1 %

Table of Contents

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

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, ~~2019~~2020 and ~~2018:~~2019:

Table 1

($ in millions)
Three months ended September 30, 2019 Personal Auto Homeowners Other Personal Total

Net written premiums $ 107.1
$ 91.5
$ 11.2
$ 209.8
Net earned premiums 108.3
75.6
8.8
192.7
Losses and LAE incurred:
Cat loss and ALAE 0.9
7.0
0.3
8.2
Non-cat loss and ALAE
Prior accident years non-cat loss and ALAE (1.2 ) —
(0.9 ) (2.1 )
Current accident year non-cat loss and ALAE 73.0
41.2
4.7
118.9
Total non-cat loss and ALAE 71.8
41.2
3.8
116.8
Total Loss and ALAE 72.7
48.2
4.1
125.0
ULAE 7.4
4.4
0.2
12.0
Total Loss and LAE 80.1
52.6
4.3
137.0
Underwriting expenses 30.9
27.8
3.3
62.0
Net underwriting (loss) gain $ (2.7 ) $ (4.8 ) $ 1.2
$ (6.3 )

Cat loss and ALAE ratio 0.8 % 9.2 % 3.5 % 4.2 %
Non-cat loss and ALAE ratio
Prior accident years non-cat loss and ALAE ratio (1.2 )% 0.1 % (9.8 )% (1.1 )%
Current accident year non-cat loss and ALAE ratio 67.4 % 54.5 % 52.5 % 61.7 %
Total non-cat loss and ALAE ratio 66.2 % 54.6 % 42.7 % 60.6 %
Total Loss and ALAE ratio 67.0 % 63.8 % 46.2 % 64.8 %
ULAE ratio 6.9 % 5.8 % 2.0 % 6.2 %
Total Loss and LAE ratio 73.9 % 69.6 % 48.2 % 71.0 %
Expense ratio 28.9 % 30.3 % 29.6 % 29.6 %
Combined ratio 102.8 % 99.9 % 77.8 % 100.6 %


($ 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		%

Table of Contents

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Table 2

($ in millions)
Three months ended September 30, 2018 Personal Auto Homeowners Other Personal Total

Net written premiums $ 110.7
$ 76.6
$ 8.0
$ 195.3
Net earned premiums 103.5
63.7
5.8
173.0
Losses and LAE incurred:
Cat loss and ALAE 0.9
11.1
0.8
12.8
Non-cat loss and ALAE
Prior accident years non-cat loss and ALAE (7.3 ) (1.5 ) (0.8 ) (9.6 )
Current accident year non-cat loss and ALAE 61.9
27.6
2.4
91.9
Total non-cat loss and ALAE 54.6
26.1
1.6
82.3
Total Loss and ALAE 55.5
37.2
2.4
95.1
ULAE 6.8
3.8
0.1
10.7
Total Loss and LAE 62.3
41.0
2.5
105.8
Underwriting expenses 32.6
24.9
2.8
60.3
Net underwriting gain (loss) $ 8.6
$ (2.2 ) $ 0.5
$ 6.9

Cat loss and ALAE ratio 0.8 % 17.4 % 13.7 % 7.4 %
Non-cat loss and ALAE ratio
Prior accident years non-cat loss and ALAE ratio (7.1 )% (2.3 )% (14.5 )% (5.6 )%
Current accident year non-cat loss and ALAE ratio 59.8 % 43.2 % 43.0 % 53.1 %
Total non-cat loss and ALAE ratio 52.7 % 40.9 % 28.5 % 47.5 %
Total Loss and ALAE ratio 53.5 % 58.3 % 42.2 % 54.9 %
ULAE ratio 6.6 % 5.9 % 1.1 % 6.2 %
Total Loss and LAE ratio 60.1 % 64.2 % 43.3 % 61.1 %
Expense ratio 29.5 % 32.6 % 34.4 % 30.9 %
Combined ratio 89.6 % 96.8 % 77.7 % 92.0 %


($ in millions)
Three months ended September 30, 2019	Personal Auto			Homeowners			Other Personal			Total

Net written premiums	$	107.1		$	91.5		$	11.2		$	209.8
Net earned premiums	108.3			75.6			8.8			192.7
Losses and LAE incurred:
Cat loss and ALAE	0.9			7.0			0.3			8.2
Non-cat loss and ALAE
Prior accident years non-cat loss and ALAE	(1.2)			—			(0.9)			(2.1)
Current accident year non-cat loss and ALAE	73.0			41.2			4.7			118.9
Total non-cat loss and ALAE	71.8			41.2			3.8			116.8
Total Loss and ALAE	72.7			48.2			4.1			125.0
ULAE	7.4			4.4			0.2			12.0
Total Loss and LAE	80.1			52.6			4.3			137.0
Underwriting expenses	30.9			27.8			3.3			62.0
Net underwriting (loss) gain	$	(2.7)		$	(4.8)		$	1.2		$	(6.3)

Cat loss and ALAE ratio	0.8		%	9.2		%	3.5		%	4.2		%
Non-cat loss and ALAE ratio
Prior accident years non-cat loss and ALAE ratio	(1.2)		%	0.1		%	(9.8)		%	(1.1)		%
Current accident year non-cat loss and ALAE ratio	67.4		%	54.5		%	52.5		%	61.7		%
Total non-cat loss and ALAE ratio	66.2		%	54.6		%	42.7		%	60.6		%
Total Loss and ALAE ratio	67.0		%	63.8		%	46.2		%	64.8		%
ULAE ratio	6.9		%	5.8		%	2.0		%	6.2		%
Total Loss and LAE ratio	73.9		%	69.6		%	48.2		%	71.0		%
Expense ratio	28.9		%	30.3		%	29.6		%	29.6		%
Combined ratio	102.8		%	99.9		%	77.8		%	100.6		%

Table of Contents

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Table 3

($ in millions)
Nine months ended September 30, 2019 Personal Auto Homeowners Other Personal Total

Net written premiums $ 324.8
$ 241.4
$ 29.0
$ 595.2
Net earned premiums 322.1
216.1
24.3
562.5
Losses and LAE incurred:
Cat loss and ALAE 5.4
47.8
4.0
57.2
Non-cat loss and ALAE
Prior accident years non-cat loss and ALAE (11.0 ) 0.5
(1.9 ) (12.4 )
Current accident year non-cat loss and ALAE 207.8
110.4
12.7
330.9
Total non-cat loss and ALAE 196.8
110.9
10.8
318.5
Total Loss and ALAE 202.2
158.7
14.8
375.7
ULAE 22.2
15.1
0.9
38.2
Total Loss and LAE 224.4
173.8
15.7
413.9
Underwriting expenses 96.7
74.8
9.1
180.6
Net underwriting gain (loss) $ 1.0
$ (32.5 ) $ (0.5 ) $ (32.0 )

Cat loss and ALAE ratio 1.6 % 22.1 % 16.5 % 10.2 %
Non-cat loss and ALAE ratio
Prior accident years non-cat loss and ALAE ratio (3.4 )% 0.3 % (7.8 )% (2.2 )%
Current accident year non-cat loss and ALAE ratio 64.5 % 51.0 % 52.0 % 58.7 %
Total non-cat loss and ALAE ratio 61.1 % 51.3 % 44.2 % 56.5 %
Total Loss and ALAE ratio 62.7 % 73.4 % 60.7 % 66.7 %
ULAE ratio 6.9 % 7.0 % 3.7 % 6.8 %
Total Loss and LAE ratio 69.6 % 80.4 % 64.4 % 73.5 %
Expense ratio 29.8 % 31.0 % 31.5 % 30.4 %
Combined ratio 99.4 % 111.4 % 95.9 % 103.9 %


($ 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		%

Table of Contents

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Table 4


($ in millions)													($ in millions)
Nine months ended September 30, 2018	Personal Auto			Homeowners			Other Personal			Total
Nine months ended September 30, 2019													Nine months ended September 30, 2019	Personal Auto			Homeowners			Other Personal			Total

Net written premiums	$	318.8		$	203.0		$	20.1		$	541.9		Net written premiums	$	324.8		$	241.4		$	29.0		$	595.2
Net earned premiums	296.1			182.0			16.1			494.2			Net earned premiums	322.1			216.1			24.3			562.5
Losses and LAE incurred:													Losses and LAE incurred:
Cat loss and ALAE	4.8			38.1			2.2			45.1			Cat loss and ALAE	5.4			47.8			4.0			57.2
Non-cat loss and ALAE													Non-cat loss and ALAE
Prior accident years non-cat loss and ALAE	(18.5		)	(7.2		)	(1.1		)	(26.8		)	Prior accident years non-cat loss and ALAE	(11.0)			0.5			(1.9)			(12.4)
Current accident year non-cat loss and ALAE	193.6			81.9			8.0			283.5			Current accident year non-cat loss and ALAE	207.8			110.4			12.7			330.9
Total non-cat loss and ALAE	175.1			74.7			6.9			256.7			Total non-cat loss and ALAE	196.8			110.9			10.8			318.5
Total Loss and ALAE	179.9			112.8			9.1			301.8			Total Loss and ALAE	202.2			158.7			14.8			375.7
ULAE	17.7			12.4			0.6			30.7			ULAE	22.2			15.1			0.9			38.2
Total Loss and LAE	197.6			125.2			9.7			332.5			Total Loss and LAE	224.4			173.8			15.7			413.9
Underwriting expenses	92.9			65.9			7.5			166.3			Underwriting expenses	96.7			74.8			9.1			180.6
Net underwriting gain (loss)	$	5.6		$	(9.1	)	$	(1.1	)	$	(4.6	)	Net underwriting gain (loss)	$	1.0		$	(32.5)		$	(0.5)		$	(32.0)

Cat loss and ALAE ratio	1.6		%	20.9		%	13.5		%	9.1		%	Cat loss and ALAE ratio	1.6		%	22.1		%	16.5		%	10.2		%
Non-cat loss and ALAE ratio													Non-cat loss and ALAE ratio
Prior accident years non-cat loss and ALAE ratio	(6.3		)%	(3.9		)%	(7.1		)%	(5.4		)%	Prior accident years non-cat loss and ALAE ratio	(3.4)		%	0.3		%	(7.8)		%	(2.2)		%
Current accident year non-cat loss and ALAE ratio	65.4		%	45.0		%	50.0		%	57.4		%	Current accident year non-cat loss and ALAE ratio	64.5		%	51.0		%	52.0		%	58.7		%
Total non-cat loss and ALAE ratio	59.1		%	41.1		%	42.9		%	52.0		%	Total non-cat loss and ALAE ratio	61.1		%	51.3		%	44.2		%	56.5		%
Total Loss and ALAE ratio	60.7		%	62.0		%	56.4		%	61.1		%	Total Loss and ALAE ratio	62.7		%	73.4		%	60.7		%	66.7		%
ULAE ratio	6.0		%	6.8		%	3.7		%	6.2		%	ULAE ratio	6.9		%	7.0		%	3.7		%	6.8		%
Total Loss and LAE ratio	66.7		%	68.8		%	60.1		%	67.3		%	Total Loss and LAE ratio	69.6		%	80.4		%	64.4		%	73.5		%
Expense ratio	29.1		%	32.5		%	37.2		%	30.7		%	Expense ratio	29.8		%	31.0		%	31.5		%	30.4		%
Combined ratio	95.8		%	101.3		%	97.3		%	98.0		%	Combined ratio	99.4		%	111.4		%	95.9		%	103.9		%

The personal insurance segment's net written premiums for the three and nine months ended September 30, ~~2019~~2020 increased ~~7.4%~~9.7% and ~~9.8%~~10.1%, respectively, when compared to the same ~~2018~~2019 periods (Tables 1 - 4), primarily driven by new business growth and increased rates in homeowners and other personal. The new business growth resulted in higher levels of policies in force for homeowners for the three and nine months ended September 30, ~~2019~~2020 compared to the same ~~2018~~2019 periods. Partially offsetting the ~~2019~~2020 third quarter and year to date net written premium growth was a decrease in personal auto net written premiums, ~~primarily~~which was driven by a decline in new business primarily attributable to cumulative rate and ~~retention when compared~~underwriting actions taken during the fourth quarter of 2019 and throughout 2020 to address personal auto profitability.

In response to the ~~same 2018 period. In addition, the 2019 year to date increase in~~COVID-19 pandemic and its impact on our personal auto ~~net written premiums~~policyholders, in April 2020 we announced our "In This Together" plan that provides a 5% discount at renewal on a personal auto policyholder's entire policy term premium, which will be applied at an upcoming renewal for active personal auto policies in force as of the renewal date. The plan was ~~driven~~approved by ~~increased rates.~~26 of our 28 personal lines states with renewal effective dates beginning mid-July.

The personal insurance segment's SAP catastrophe loss and ALAE ratios for the three and nine months ended September 30, ~~2019 improved 3.2~~2020 increased 11.6 points and ~~increased 1.1~~8.2 points, respectively, when compared to the same ~~2018 periods.~~2019 periods (Tables 1 - 4), driven by an increase in the severity of wind and hail events, which primarily impacted the homeowners line of business. The ~~2019~~2020 third quarter ~~catastrophe events~~and year to date cat loss and ALAE ratios were ~~less severe when compared~~impacted by (i) the Midwest derecho in August that contributed 4.7 points and 1.6 points, respectively, to the ~~same 2018 period, which was impacted by Hurricane Florence.~~

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.

Table of Contents

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

The personal insurance segment’s SAP non-catastrophe loss and ALAE ~~ratios~~ratio for the three and nine months ended September 30, ~~2019 increased 13.1~~2020 improved 2.3 points and ~~4.5~~3.4 points, respectively, when compared to the same ~~2018~~2019 periods (Tables 1 - 4).

The personal auto SAP non-catastrophe loss and ALAE ratios for the three and nine months ended September 30, ~~2019 increased 13.5~~2020 improved 2.0 points and ~~2.0~~1.7 points, respectively, when compared to the same ~~2018 periods (Tables 1 - 4).~~2019 periods. The 2020 third quarter and year to date non-catastrophe loss and ALAE ratios were impacted by (i) a lower level of current accident year losses attributable to fewer miles driven as a result of people working remotely and staying at home more because of COVID-19 concerns during the first nine months of 2020, and (ii) adverse development from prior accident years compared to favorable development in the same 2019 periods. The 2020 third quarter and year to date prior accident year adverse development was primarily driven by higher than expected severity for bodily injury claims from multiple accident years. The 2019 third quarter ~~reflected 5.9 points less favorable development across multiple coverages including bodily injury as well as adverse development of uninsured~~ and ~~under-insured motorist coverages. The 2019~~ year to date ~~reflected 2.9 points less favorable development across many of the same coverages including adverse development of property damage claims. The 2018~~ prior accident year favorable development was primarily ~~attributable to lower than anticipated severity for bodily~~driven by uninsured motorist and personal injury claims from the 2016 and 2017 accident years. The 2019 third quarter current accident year loss ratio increased 7.6 points when compared to the same 2018 period. The 2019 year to date current accident year loss ratio improved 0.9 points when compared to the same 2018 period, primarily attributable to cumulative rate and underwriting actions, as well as improved claim handling efficiency.protection coverages.

The homeowners SAP non-catastrophe loss and ALAE ratios for the three and nine months ended September 30, ~~2019~~2020 increased ~~13.7 points~~1.0 point and ~~10.2~~improved 2.7 points, respectively, when compared to the same ~~2018~~2019 periods. The ~~2019 third quarter and~~2020 year to date improvement was primarily driven by lower claim frequency in the current accident ~~year loss ratios increased 11.3 points and 6.0 points, respectively, when compared to~~year. Partially offsetting the ~~same 2018 periods, attributable to an elevated level of non-cat weather losses including a number of large fire losses due to lightning strikes. The 2019 third quarter and~~ year to date improvement was adverse development of prior accident year losses, ~~were minimally impacted~~primarily driven by ~~development compared to favorable development~~higher severity on fourth quarter 2019 third-party liability and property claims that emerged during the first quarter of 2.3 points and 3.9 points, respectively, for the same 2018 periods. The 2018 prior accident year favorable development was primarily attributable to favorable emergence on liability claims from multiple accident years.2020.

Table of Contents

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

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, ~~2019~~2020 and ~~2018:~~2019:

Table 5

($ in millions)
Three months ended
September 30, 2019 Commercial Auto Small Commercial Package Middle Market Commercial Workers' Comp Farm & Ranch Other Commercial Total

Net written premiums $ 27.7
$ 30.0
$ 39.8
$ 23.9
$ 11.4
$ 4.6
$ 137.4
Net earned premiums 23.8
29.9
34.9
21.7
12.4
4.3
127.0
Losses and LAE incurred:
Cat loss and ALAE 0.1
1.1
0.5
—
0.4
—
2.1
Non-cat loss and ALAE
Prior accident years non-cat loss and ALAE (1.1 ) (4.1 ) (1.2 ) (4.4 ) (0.7 ) (1.6 ) (13.1 )
Current accident year non-cat loss and ALAE 15.2
17.9
19.7
13.9
6.2
3.2
76.1
Total non-cat loss and ALAE 14.1
13.8
18.5
9.5
5.5
1.6
63.0
Total Loss and ALAE 14.2
14.9
19.0
9.5
5.9
1.6
65.1
ULAE 1.6
1.3
2.0
1.8
0.4
0.1
7.2
Total Loss and LAE 15.8
16.2
21.0
11.3
6.3
1.7
72.3
Underwriting expenses 11.9
11.7
15.9
7.2
4.7
2.1
53.5
Net underwriting (loss) gain $ (3.9 ) $ 2.0
$ (2.0 ) $ 3.2
$ 1.4
$ 0.5
$ 1.2

Cat loss and ALAE ratio 0.5 % 3.7 % 1.6 % — % 3.2 % — % 1.7 %
Non-cat loss and ALAE ratio
Prior accident years non-cat loss and ALAE ratio (4.6 )% (13.7 )% (3.6 )% (20.1 )% (5.7 )% (37.9 )% (10.4 )%
Current accident year non-cat loss and ALAE ratio 63.8 % 60.1 % 56.3 % 64.2 % 50.0 % 75.9 % 60.0 %
Total non-cat loss and ALAE ratio 59.2 % 46.4 % 52.7 % 44.1 % 44.3 % 38.0 % 49.6 %
Total Loss and ALAE ratio 59.7 % 50.1 % 54.3 % 44.1 % 47.5 % 38.0 % 51.3 %
ULAE ratio 6.7 % 4.2 % 5.7 % 8.3 % 3.2 % 4.1 % 5.7 %
Total Loss and LAE ratio 66.4 % 54.3 % 60.0 % 52.4 % 50.7 % 42.1 % 57.0 %
Expense ratio 43.0 % 39.1 % 40.0 % 30.0 % 41.7 % 42.2 % 38.9 %
Combined ratio 109.4 % 93.4 % 100.0 % 82.4 % 92.4 % 84.3 % 95.9 %


($ in millions)
Three months ended September 30, 2020	Commercial Auto			Small Commercial Package			Middle Market 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		%

Table of Contents

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, 2018 Commercial Auto Small Commercial Package Middle Market Commercial Workers' Comp Farm & Ranch Other Commercial Total

Net written premiums $ 19.1
$ 29.1
$ 30.7
$ 24.1
$ 10.7
$ 3.9
$ 117.6
Net earned premiums 18.8
30.5
29.4
21.3
11.3
3.9
115.2
Losses and LAE incurred:
Cat loss and ALAE (0.4 ) 2.1
0.5
—
0.8
0.1
3.1
Non-cat loss and ALAE
Prior accident years non-cat loss and ALAE (1.1 ) (1.8 ) (2.1 ) (2.5 ) (1.0 ) (1.8 ) (10.3 )
Current accident year non-cat loss and ALAE 11.5
18.5
18.7
14.3
6.5
2.3
71.8
Total non-cat loss and ALAE 10.4
16.7
16.6
11.8
5.5
0.5
61.5
Total Loss and ALAE 10.0
18.8
17.1
11.8
6.3
0.6
64.6
ULAE 0.9
1.8
1.6
1.8
0.3
0.2
6.6
Total Loss and LAE 10.9
20.6
18.7
13.6
6.6
0.8
71.2
Underwriting expenses 8.8
12.7
12.5
7.4
5.5
2.3
49.2
Net underwriting (loss) gain $ (0.9 ) $ (2.8 ) $ (1.8 ) $ 0.3
$ (0.8 ) $ 0.8
$ (5.2 )

Cat loss and ALAE ratio (1.8 )% 6.8 % 1.7 % — % 7.3 % 2.1 % 2.7 %
Non-cat loss and ALAE ratio
Prior accident years non-cat loss and ALAE ratio (5.9 )% (5.8 )% (7.3 )% (12.0 )% (8.2 )% (44.6 )% (8.9 )%
Current accident year non-cat loss and ALAE ratio 60.9 % 60.6 % 63.6 % 67.5 % 57.5 % 60.8 % 62.4 %
Total non-cat loss and ALAE ratio 55.0 % 54.8 % 56.3 % 55.5 % 49.3 % 16.2 % 53.5 %
Total Loss and ALAE ratio 53.2 % 61.6 % 58.0 % 55.5 % 56.6 % 18.3 % 56.2 %
ULAE ratio 5.1 % 5.7 % 5.3 % 8.1 % 2.4 % 6.5 % 5.7 %
Total Loss and LAE ratio 58.3 % 67.3 % 63.3 % 63.6 % 59.0 % 24.8 % 61.9 %
Expense ratio 46.3 % 43.6 % 40.5 % 30.5 % 51.5 % 57.7 % 41.8 %
Combined ratio 104.6 % 110.9 % 103.8 % 94.1 % 110.5 % 82.5 % 103.7 %


($ in millions)
Three months ended September 30, 2019	Commercial Auto			Small Commercial Package			Middle Market Commercial			Workers' Comp			Farm & Ranch			Other Commercial			Total

Net written premiums	$	27.7		$	30.0		$	39.8		$	23.9		$	11.4		$	4.6		$	137.4
Net earned premiums	23.8			29.9			34.9			21.7			12.4			4.3			127.0
Losses and LAE incurred:
Cat loss and ALAE	0.1			1.1			0.5			—			0.4			—			2.1
Non-cat loss and ALAE
Prior accident years non-cat loss and ALAE	(1.1)			(4.1)			(1.2)			(4.4)			(0.7)			(1.6)			(13.1)
Current accident year non-cat loss and ALAE	15.2			17.9			19.7			13.9			6.2			3.2			76.1
Total non-cat loss and ALAE	14.1			13.8			18.5			9.5			5.5			1.6			63.0
Total Loss and ALAE	14.2			14.9			19.0			9.5			5.9			1.6			65.1
ULAE	1.6			1.3			2.0			1.8			0.4			0.1			7.2
Total Loss and LAE	15.8			16.2			21.0			11.3			6.3			1.7			72.3
Underwriting expenses	11.9			11.7			15.9			7.2			4.7			2.1			53.5
Net underwriting (loss) gain	$	(3.9)		$	2.0		$	(2.0)		$	3.2		$	1.4		$	0.5		$	1.2

Cat loss and ALAE ratio	0.5		%	3.7		%	1.6		%	—		%	3.2		%	—		%	1.7		%
Non-cat loss and ALAE ratio
Prior accident years non-cat loss and ALAE ratio	(4.6)		%	(13.7)		%	(3.6)		%	(20.1)		%	(5.7)		%	(37.9)		%	(10.4)		%
Current accident year non-cat loss and ALAE ratio	63.8		%	60.1		%	56.3		%	64.2		%	50.0		%	75.9		%	60.0		%
Total non-cat loss and ALAE ratio	59.2		%	46.4		%	52.7		%	44.1		%	44.3		%	38.0		%	49.6		%
Total Loss and ALAE ratio	59.7		%	50.1		%	54.3		%	44.1		%	47.5		%	38.0		%	51.3		%
ULAE ratio	6.7		%	4.2		%	5.7		%	8.3		%	3.2		%	4.1		%	5.7		%
Total Loss and LAE ratio	66.4		%	54.3		%	60.0		%	52.4		%	50.7		%	42.1		%	57.0		%
Expense ratio	43.0		%	39.1		%	40.0		%	30.0		%	41.7		%	42.2		%	38.9		%
Combined ratio	109.4		%	93.4		%	100.0		%	82.4		%	92.4		%	84.3		%	95.9		%

Table of Contents

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, 2019 Commercial Auto Small Commercial Package Middle Market Commercial Workers' Comp Farm & Ranch Other Commercial Total

Net written premiums $ 81.4
$ 92.0
$ 115.1
$ 58.8
$ 37.4
$ 14.1
$ 398.8
Net earned premiums 65.3
88.9
98.1
60.3
36.2
12.6
361.4
Losses and LAE incurred:
Cat loss and ALAE 0.2
6.1
5.7
—
2.5
—
14.5
Non-cat loss and ALAE
Prior accident years non-cat loss and ALAE (3.6 ) (11.8 ) (7.2 ) (13.4 ) (1.9 ) (1.4 ) (39.3 )
Current accident year non-cat loss and ALAE 41.2
51.3
62.2
42.3
18.0
7.7
222.7
Total non-cat loss and ALAE 37.6
39.5
55.0
28.9
16.1
6.3
183.4
Total Loss and ALAE 37.8
45.6
60.7
28.9
18.6
6.3
197.9
ULAE 4.2
4.8
5.0
5.4
1.5
0.5
21.4
Total Loss and LAE 42.0
50.4
65.7
34.3
20.1
6.8
219.3
Underwriting expenses 33.6
36.0
46.0
20.2
17.4
6.0
159.2
Net underwriting (loss) gain $ (10.3 ) $ 2.5
$ (13.6 ) $ 5.8
$ (1.3 ) $ (0.2 ) $ (17.1 )

Cat loss and ALAE ratio 0.4 % 6.9 % 5.8 % — % 6.8 % — % 4.0 %
Non-cat loss and ALAE ratio
Prior accident years non-cat loss and ALAE ratio (5.5 )% (13.3 )% (7.4 )% (22.1 )% (5.2 )% (11.2 )% (10.9 )%
Current accident year non-cat loss and ALAE ratio 62.9 % 57.7 % 63.4 % 70.2 % 49.7 % 61.7 % 61.7 %
Total non-cat loss and
ALAE ratio 57.4 % 44.4 % 56.0 % 48.1 % 44.5 % 50.5 % 50.8 %
Total Loss and ALAE ratio 57.8 % 51.3 % 61.8 % 48.1 % 51.3 % 50.5 % 54.8 %
ULAE ratio 6.5 % 5.4 % 5.1 % 8.9 % 4.2 % 4.3 % 5.9 %
Total Loss and LAE ratio 64.3 % 56.7 % 66.9 % 57.0 % 55.5 % 54.8 % 60.7 %
Expense ratio 41.3 % 39.1 % 40.0 % 34.4 % 46.6 % 41.7 % 39.9 %
Combined ratio 105.6 % 95.8 % 106.9 % 91.4 % 102.1 % 96.5 % 100.6 %


($ in millions)
Nine months ended September 30, 2020	Commercial Auto			Small Commercial Package			Middle Market 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		%

Table of Contents

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Table 8


($ in millions)																						($ in millions)
Nine months ended September 30, 2018	Commercial Auto			Small Commercial Package			Middle Market Commercial			Workers' Comp			Farm & Ranch			Other Commercial			Total
Nine months ended September 30, 2019																						Nine months ended September 30, 2019	Commercial Auto			Small Commercial Package			Middle Market Commercial			Workers' Comp			Farm & Ranch			Other Commercial			Total

Net written premiums	$	59.1		$	91.1		$	92.6		$	66.1		$	34.9		$	12.7		$	356.5		Net written premiums	$	81.4		$	92.0		$	115.1		$	58.8		$	37.4		$	14.1		$	398.8
Net earned premiums	55.9			91.2			86.7			66.7			33.4			11.8			345.7			Net earned premiums	65.3			88.9			98.1			60.3			36.2			12.6			361.4
Losses and LAE incurred:																						Losses and LAE incurred:
Cat loss and ALAE	0.2			9.8			5.8			—			2.4			0.1			18.3			Cat loss and ALAE	0.2			6.1			5.7			—			2.5			—			14.5
Non-cat loss and ALAE																						Non-cat loss and ALAE
Prior accident years non-cat loss and ALAE	(5.7		)	(6.5		)	(2.9		)	(8.4		)	(2.2		)	(3.9		)	(29.6		)	Prior accident years non-cat loss and ALAE	(3.6)			(11.8)			(7.2)			(13.4)			(1.9)			(1.4)			(39.3)
Current accident year non-cat loss and ALAE	34.9			55.3			55.9			43.3			17.1			6.0			212.5			Current accident year non-cat loss and ALAE	41.2			51.3			62.2			42.3			18.0			7.7			222.7
Total non-cat loss and ALAE	29.2			48.8			53.0			34.9			14.9			2.1			182.9			Total non-cat loss and ALAE	37.6			39.5			55.0			28.9			16.1			6.3			183.4
Total Loss and ALAE	29.4			58.6			58.8			34.9			17.3			2.2			201.2			Total Loss and ALAE	37.8			45.6			60.7			28.9			18.6			6.3			197.9
ULAE	3.2			4.8			4.6			5.6			1.3			0.8			20.3			ULAE	4.2			4.8			5.0			5.4			1.5			0.5			21.4
Total Loss and LAE	32.6			63.4			63.4			40.5			18.6			3.0			221.5			Total Loss and LAE	42.0			50.4			65.7			34.3			20.1			6.8			219.3
Underwriting expenses	26.4			40.4			36.1			21.8			15.7			6.1			146.5			Underwriting expenses	33.6			36.0			46.0			20.2			17.4			6.0			159.2
Net underwriting (loss) gain	$	(3.1	)	$	(12.6	)	$	(12.8	)	$	4.4		$	(0.9	)	$	2.7		$	(22.3	)	Net underwriting (loss) gain	$	(10.3)		$	2.5		$	(13.6)		$	5.8		$	(1.3)		$	(0.2)		$	(17.1)

Cat loss and ALAE ratio	0.4		%	10.8		%	6.7		%	—		%	7.3		%	0.6		%	5.3		%	Cat loss and ALAE ratio	0.4		%	6.9		%	5.8		%	—		%	6.8		%	—		%	4.0		%
Non-cat loss and ALAE ratio																						Non-cat loss and ALAE ratio
Prior accident years non-cat loss and ALAE ratio	(10.1		)%	(7.1		)%	(3.3		)%	(12.6		)%	(6.5		)%	(32.9		)%	(8.5		)%	Prior accident years non-cat loss and ALAE ratio	(5.5)		%	(13.3)		%	(7.4)		%	(22.1)		%	(5.2)		%	(11.2)		%	(10.9)		%
Current accident year non-cat loss and ALAE ratio	62.4		%	60.6		%	64.5		%	64.9		%	51.1		%	51.2		%	61.5		%	Current accident year non-cat loss and ALAE ratio	62.9		%	57.7		%	63.4		%	70.2		%	49.7		%	61.7		%	61.7		%
Total non-cat loss and ALAE ratio	52.3		%	53.5		%	61.2		%	52.3		%	44.6		%	18.3		%	53.0		%	Total non-cat loss and ALAE ratio	57.4		%	44.4		%	56.0		%	48.1		%	44.5		%	50.5		%	50.8		%
Total Loss and ALAE ratio	52.7		%	64.3		%	67.9		%	52.3		%	51.9		%	18.9		%	58.3		%	Total Loss and ALAE ratio	57.8		%	51.3		%	61.8		%	48.1		%	51.3		%	50.5		%	54.8		%
ULAE ratio	5.8		%	5.2		%	5.3		%	8.4		%	3.9		%	6.8		%	5.9		%	ULAE ratio	6.5		%	5.4		%	5.1		%	8.9		%	4.2		%	4.3		%	5.9		%
Total Loss and LAE ratio	58.5		%	69.5		%	73.2		%	60.7		%	55.8		%	25.7		%	64.2		%	Total Loss and LAE ratio	64.3		%	56.7		%	66.9		%	57.0		%	55.5		%	54.8		%	60.7		%
Expense ratio	44.7		%	44.3		%	39.0		%	32.9		%	45.0		%	47.9		%	41.1		%	Expense ratio	41.3		%	39.1		%	40.0		%	34.4		%	46.6		%	41.7		%	39.9		%
Combined ratio	103.2		%	113.8		%	112.2		%	93.6		%	100.8		%	73.6		%	105.3		%	Combined ratio	105.6		%	95.8		%	106.9		%	91.4		%	102.1		%	96.5		%	100.6		%

The commercial insurance segment's net written premiums for the three and nine months ended September 30, ~~2019,~~2020, increased ~~16.8%~~8.3% and ~~11.9%~~13.4%, respectively, when compared to the same ~~2018~~2019 periods (Tables 5 - 8), primarily driven by (i) new business growth and rate increases in commercial auto, (ii) new business growth in ~~commercial auto~~farm & ranch, and (iii) rate increases in middle market commercial. The ~~2019 year to date improvements~~new business growth in farm & ranch was driven by the continued state rollout of the State Auto Connect platform during the third quarter, which is now live in 27 states. Eight of the 27 states are states that we previously were not writing policies for farm & ranch products. The rollout of the State Auto Connect platform in farm & ranch's remaining states will continue throughout 2020. Additionally, the State Auto Connect platform was launched for middle market commercial in March 2020 and is currently live in 16 states, with subsequent state rollouts scheduled for the remainder of 2020 and the first half of 2021. The net written premium growth was partially offset by a decrease in net written premiums in workers’ compensation due to ~~lower retention on renewal~~(i) a decline in new business as a result of ~~the~~COVID-19, and (ii) continued intense competition in this market.

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STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

The commercial insurance segment's SAP catastrophe loss and ALAE ratios for the three and nine months ended September 30, ~~2019 improved 1.0~~2020 increased 7.6 points and ~~1.3~~12.1 points, respectively, when compared to the same ~~2018~~2019 periods (Tables 5 - 8)~~. Catastrophe~~, with most of the third quarter and year to date catastrophe losses impacting small commercial package, middle market commercial, and farm & ranch. The 2020 third quarter and year to date cat loss and ALAE ratios were impacted by (i) an increase in the severity of weather events ~~for the three and nine months ended September 30, 2019 were less severe~~ when compared to the same ~~2018 periods.~~2019 periods and (ii) the Midwest derecho in August which contributed 4.4 points and 1.5 points, respectively, to the cat loss and ALAE ratios. 2020 year to date was also 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, and (ii) property losses resulting from the civil unrest which added 1.5 points to the cat loss and LAE ratios.

The commercial insurance segment’s SAP non-catastrophe loss and ALAE ratios for the three and nine months ended September 30, ~~2019~~2020 improved ~~3.9~~12.2 points and ~~2.2~~7.2 points, respectively, when compared to the same ~~2018~~2019 periods (Tables 5 - 8).

The commercial auto SAP non-catastrophe loss and ALAE ratios for the three and nine months ended September 30, ~~2019 increased 4.2~~2020 improved 4.3 points and ~~5.1~~4.6 points, respectively, when compared to the same ~~2018 periods. The increase in the non-catastrophe loss and ALAE ratio for the~~ 2019 ~~third quarter was primarily~~periods, driven by ~~elevated bodily injury and uninsured motorist claims~~improvement in the current accident ~~year when compared to the same 2018 period.~~year. The ~~amount of prior accident year development in the 2019~~2020 third quarter ~~was consistent with the prior year, although with the growing commercial auto book of business, the increase in the loss ratio had a lesser impact when compared to the same 2018 period. For the 2019~~and year to date current accident year was impacted by lower claims frequency, attributable to fewer miles driven due to people working remotely and staying at home more because of COVID-19 concerns. Partially offsetting the ~~increase in the non-catastrophe loss~~2020 third quarter and ~~ALAE ratio~~year to date improvement was ~~driven by~~ less favorable development of prior accident year losses ~~of 5.5 points~~when compared to ~~10.1 points~~

~~Table of Contents~~

~~STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES~~

~~(a majority-owned subsidiary of State Automobile Mutual Insurance Company)~~

~~for~~ the same ~~2018 period.~~2019 periods. The ~~2018~~2019 prior accident year favorable development was primarily attributable to lower than anticipated ~~bodily injury~~ severity from the ~~2016 and~~ 2017 accident ~~years.~~year.

The small commercial package SAP non-catastrophe loss and ALAE ratios for the three and nine months ended September 30, ~~2019~~2020 improved ~~8.4~~15.9 points and ~~9.1~~4.7 points, respectively, when compared to the same ~~2018~~2019 periods, primarily ~~driven by~~due to greater favorable development of prior accident year ~~losses. The 2019 favorable development was attributable to~~losses, driven by lower than expected bodily injury severity from multiple accident ~~years. In addition, the 2019 year to date was impacted by a lower level of current accident year property losses~~years when compared to the same ~~2018 period, which was~~2019 periods. The 2020 third quarter and year to date current accident year ratios were impacted by ~~weather-related~~(i) a decline in claim frequency as a result of reduced business activity caused by COVID-19, and (ii) increased severity of property losses, primarily related to fire. The 2020 year to date current accident year was also impacted by increased legal defense costs from claims ~~and large fire losses.~~related to COVID-19, 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, ~~2019~~2020 improved ~~3.6~~18.5 points and ~~5.2~~8.2 points, respectively, ~~compared to the same 2018 periods. The 2019 third quarter current accident year improved~~ when compared to the same ~~2018 period, which was impacted by~~ ~~elevated claim frequency. The~~ ~~2019~~ ~~third quarter improvement was partially offset by less favorable development from prior accident year losses when compared to the same~~ ~~2018~~ ~~period.~~ ~~The~~ 2019 ~~year~~periods, primarily due to ~~date improvement in the non-catastrophe loss and ALAE ratio was primarily driven by~~ greater favorable development of prior accident year losses, ~~due to~~driven by lower than expected bodily injury ~~claim~~ severity from multiple accident ~~years.~~years when compared to the same 2019 periods. 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 caused by the COVID-19 pandemic. The 2020 year to date current accident year was also impacted by increased legal defense costs from claims related to COVID-19, which added 0.7 points to the year to date non-cat loss ratio.

The workers' compensation SAP non-catastrophe loss and ALAE ratios for the three and nine months ended September 30, ~~2019~~2020 improved ~~11.4~~3.5 points and ~~4.2~~3.1 points, respectively, when compared to the same ~~2018 periods. The~~ 2019 ~~third quarter and year~~periods, primarily due to ~~date were impacted by~~ greater favorable development of prior accident year losses across multiple accident years. The 2020 quarter and year to date current accident year ratios were impacted by increased claims for businesses in the medical field (e.g. nursing homes, hospitals) caused by the COVID-19 pandemic, which added 3.9 points and 6.3 points, respectively, which was partially offset by a decline in claim frequency due to reduced business and employment activity caused by the COVID-19 pandemic. The 2020 third quarter and year to date current accident year ratios were also impacted by a large loss that added 10.0 points and 3.2 points, respectively, to the non-cat loss ratios.

The farm & ranch SAP non-catastrophe loss and ALAE ratios for the three and nine months ended September 30, 2020 improved 13.5 points and 11.3 points, respectively, when compared to the same ~~2018~~2019 periods, primarily ~~from~~due to lower ~~than anticipated severity. Partially offsetting the 2019 year to date improvement~~claim frequency in the ~~non-cat loss and ALAE ratio was a single large loss that occurred in the 2019 second quarter. The 2018 second quarter was impacted by an elevated level of large losses.~~

current accident year.

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STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

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, ~~2019~~2020 and ~~2018:~~2019:


($ millions)	Three months ended September 30									Nine months ended September 30									($ millions)	Three months ended September 30						Nine months ended September 30
	2019			2018			$ Change			2019			2018			$ Change				2020		2019		$ Change		2020		2019		$ Change
	(Redundancy)/Deficiency									(Redundancy)/Deficiency										(Favorable)/Adverse						(Favorable)/Adverse
Non-cat loss and ALAE:																			Non-cat loss and ALAE:
Personal Insurance Segment:																			Personal Insurance Segment:
Personal Auto	$	(1.2	)	$	(7.3	)	$	6.1		$	(11.0	)	$	(18.5	)	$	7.5		Personal Auto	$	8.0	$	(1.2)	$	9.2	$	19.1	$	(11.0)	$	30.1
Homeowners	—			(1.5		)	1.5			0.5			(7.2		)	7.7			Homeowners	0.7		—		0.7		2.8		0.5		2.3
Other Personal	(0.9		)	(0.8		)	(0.1		)	(1.9		)	(1.1		)	(0.8		)	Other Personal	(0.6)		(0.9)		0.3		(1.7)		(1.9)		0.2
Total Personal Insurance Segment	(2.1		)	(9.6		)	7.5			(12.4		)	(26.8		)	14.4			Total Personal Insurance Segment	8.1		(2.1)		10.2		20.2		(12.4)		32.6

Commercial Insurance Segment:																			Commercial Insurance Segment:
Commercial Auto	(1.1		)	(1.1		)	—			(3.6		)	(5.7		)	2.1			Commercial Auto	(1.2)		(1.1)		(0.1)		(1.5)		(3.6)		2.1
Small Commercial Package	(4.1		)	(1.8		)	(2.3		)	(11.8		)	(6.5		)	(5.3		)	Small Commercial Package	(7.5)		(4.1)		(3.4)		(16.5)		(11.8)		(4.7)
Middle Market Commercial	(1.2		)	(2.1		)	0.9			(7.2		)	(2.9		)	(4.3		)	Middle Market Commercial	(6.3)		(1.2)		(5.1)		(14.3)		(7.2)		(7.1)
Workers' Compensation	(4.4		)	(2.5		)	(1.9		)	(13.4		)	(8.4		)	(5.0		)	Workers' Compensation	(7.3)		(4.4)		(2.9)		(16.1)		(13.4)		(2.7)
Farm & Ranch	(0.7		)	(1.0		)	0.3			(1.9		)	(2.2		)	0.3			Farm & Ranch	(0.6)		(0.7)		0.1		(1.7)		(1.9)		0.2
Other Commercial	(1.6		)	(1.8		)	0.2			(1.4		)	(3.9		)	2.5			Other Commercial	(3.6)		(1.6)		(2.0)		(7.1)		(1.4)		(5.7)
Total Commercial Insurance Segment	(13.1		)	(10.3		)	(2.8		)	(39.3		)	(29.6		)	(9.7		)	Total Commercial Insurance Segment	(26.5)		(13.1)		(13.4)		(57.2)		(39.3)		(17.9)


Specialty run-off	(0.9		)	1.8			(2.7		)	(2.4		)	4.2			(6.6		)	Specialty run-off	(0.9)		(0.9)		—		5.2		(2.4)		7.6
Cat Loss and ALAE	(1.0		)	0.8			(1.8		)	(0.2		)	1.3			(1.5		)	Cat Loss and ALAE	11.6		(1.0)		12.6		12.8		(0.2)		13.0
ULAE	(0.4		)	(2.0		)	1.6			(0.8		)	(6.7		)	5.9			ULAE	(2.3)		(0.4)		(1.9)		1.4		(0.8)		2.2
Total	$	(17.5	)	$	(19.3	)	$	1.8		$	(55.1	)	$	(57.6	)	$	2.5		Total	$	(10.0)	$	(17.5)	$	7.5	$	(17.6)	$	(55.1)	$	37.5

For further information, see the "Personal Insurance Segment" and "Commercial Insurance Segment" discussions included in this Item 2.

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STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Losses and loss expenses payable

The following table sets forth losses and loss expenses payable by major product at September 30, ~~2019~~2020 and December 31, ~~2018:~~2019:


($ millions)	September 30, 2019		December 31, 2018		$ Change			($ millions)	September 30, 2020		December 31, 2019		$ Change
Personal Insurance Segment:								Personal Insurance Segment:
Personal Auto	$	163.5	$	173.2	$	(9.7	)	Personal Auto	$	162.4	$	162.9	$	(0.5)
Homeowners	70.6		53.2		17.4			Homeowners	103.7		69.2		34.5
Other Personal	15.1		14.1		1.0			Other Personal	16.5		15.1		1.4
Total Personal Insurance Segment	249.2		240.5		8.7			Total Personal Insurance Segment	282.6		247.2		35.4
Commercial Insurance Segment:								Commercial Insurance Segment:
Commercial Auto	77.4		78.9		(1.5		)	Commercial Auto	87.4		76.7		10.7
Small Commercial Package	116.9		120.0		(3.1		)	Small Commercial Package	108.6		110.5		(1.9)
Middle Market Commercial	153.0		147.2		5.8			Middle Market Commercial	160.2		152.8		7.4
Workers’ Compensation	194.3		195.4		(1.1		)	Workers’ Compensation	183.9		187.8		(3.9)
Farm & Ranch	15.6		12.9		2.7			Farm & Ranch	16.3		13.3		3.0
Other Commercial	31.8		27.5		4.3			Other Commercial	30.2		30.9		(0.7)
Total Commercial Insurance Segment	589.0		581.9		7.1			Total Commercial Insurance Segment	586.6		572.0		14.6
Specialty run-off:								Specialty run-off:
E&S Property	24.0		33.1		(9.1		)	E&S Property	29.7		27.8		1.9
E&S Casualty	155.2		186.8		(31.6		)	E&S Casualty	117.9		145.9		(28.0)
Programs	68.1		99.0		(30.9		)	Programs	39.3		60.0		(20.7)
Total Specialty run-off	247.3		318.9		(71.6		)	Total Specialty run-off	186.9		233.7		(46.8)
Total losses and loss expenses payable, net of reinsurance recoverable on losses and loss expenses payable	$	1,085.5	$	1,141.3	$	(55.8	)
Total losses and loss expenses payable, net of reinsurance recoverable on losses and loss expenses payable and allowance for credit losses								Total losses and loss expenses payable, net of reinsurance recoverable on losses and loss expenses payable and allowance for credit losses	$	1,056.1	$	1,052.9	$	3.2

Losses and loss expenses payable ~~decreased $55.8~~increased $3.2 million since December 31, ~~2018~~2019 primarily due to a higher level of catastrophe losses in the commercial and personal insurance segments discussed above and growth in the commercial auto line, partially offset by the run-off of specialty business.

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 “Part II—Item 1A—Risk Factors” included in this Form 10-Q.

The risks and uncertainties inherent in our estimates include, but are not limited to, actual settlement experience ~~different~~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 ~~2018~~2019 Form 10-K.

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STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Acquisition and Operating Expenses

Our GAAP acquisition and operating expenses for the three and nine months ended September 30, ~~2019~~2020 were $123.0 million and $357.4 million, respectively, compared to $109.7 million and $325.2 million, respectively, ~~compared to $110.9 million and $333.0 million, respectively,~~ for the same ~~2018~~2019 periods. The ~~decreases~~2020 third quarter and year to date increases were driven by ~~a decrease~~(i) amortization of deferred acquisition costs due to growth, (ii) IT expenses, including electronic data processing equipment and software cost amortization and IT consulting, and (iii) variable agent compensation. The shift to State Auto Connect and our digital journey over the last five years continue to drive the increases in ~~(i)~~IT expenses. Partially offsetting the third quarter and year to date increases in acquisition and operating expenses were decreases in estimated variable associate compensation ~~and (ii) consulting spend, primarily information technology related.~~when compared to the same 2019 periods.

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 ~~2018~~2019 Form 10-K.

Composition of Investment Portfolio

The following table sets forth the composition of our investment portfolio at carrying value at September 30, ~~2019~~2020 and December 31, ~~2018:~~2019:


($ millions)	September 30, 2020		% of Total		December 31, 2019		% of Total
Cash and cash equivalents	$	131.4	4.7	%	$	78.0	2.8	%
Fixed maturities, at fair value:
Fixed maturities	2,049.3		73.7	%	1,992.3		72.5	%
Treasury inflation-protected securities	117.0		4.2	%	135.6		5.0	%
Total fixed maturities	2,166.3		77.9	%	2,127.9		77.5	%
Notes receivable from affiliate	70.0		2.5	%	70.0		2.5	%
Equity securities:
Large-cap securities	120.0		4.3	%	104.4		3.8	%
Mutual and exchange traded funds	219.5		7.9	%	290.8		10.6	%
Total equity securities	339.5		12.2	%	395.2		14.4	%
Other invested assets:
International funds	48.5		1.7	%	56.4		2.1	%
Other invested assets	14.0		0.5	%	13.3		0.5	%
Total other invested assets	62.5		2.2	%	69.7		2.6	%
Other invested assets, at cost	12.5		0.5	%	6.5		0.2	%
Total portfolio	$	2,782.2	100.0	%	$	2,747.3	100.0	%

($ millions) September 30, 2019 % of Total December 31, 2018 % of Total
Cash and cash equivalents $ 38.3
1.4 % $ 59.8
2.2 %
Fixed maturities, at fair value:
Fixed maturities 2,054.0
74.9 % 2,017.1
75.9 %
Treasury inflation-protected securities 135.3
4.9 % 142.4
5.4 %
Total fixed maturities 2,189.3
79.8 % 2,159.5
81.3 %
Notes receivable from affiliate 70.0
2.6 % 70.0
2.6 %
Equity securities:
Large-cap securities 99.1
3.6 % 77.2
2.9 %
Mutual and exchange traded funds 274.2
10.0 % 237.8
8.9 %
Total equity securities 373.3
13.6 % 315.0
11.8 %
Other invested assets:
International funds 51.7
1.9 % 38.5
1.5 %
Other invested assets 12.9
0.5 % 10.3
0.4 %
Total other invested assets 64.6
2.4 % 48.8
1.9 %
Other invested assets, at cost 6.5
0.2 % 5.6
0.2 %
Total portfolio $ 2,742.0
100.0 % $ 2,658.7
100.0 %

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STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

The following table sets forth the amortized cost and fair value of available-for-sale fixed maturities by contractual maturity at September 30, ~~2019:~~2020:


($ millions)	Amortized cost		Fair value		($ millions)	Amortized cost		Fair value
Due in 1 year or less	$	55.7	$	56.6	Due in 1 year or less	$	119.8	$	120.9
Due after 1 year through 5 years	562.7		569.4		Due after 1 year through 5 years	519.9		548.0
Due after 5 years through 10 years	239.9		249.7		Due after 5 years through 10 years	168.0		178.9
Due after 10 years	565.7		593.5		Due after 10 years	682.4		737.5
U.S. government agencies mortgage-backed securities	705.0		720.1		U.S. government agencies mortgage-backed securities	557.0		581.0
Total	$	2,129.0	$	2,189.3	Total	$	2,047.1	$	2,166.3

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 ~~3.63~~4.80 and ~~4.23~~4.17 as of September 30, ~~2019,~~2020, and December 31, ~~2018,~~2019, respectively.

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STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Investment Operations Revenue

The following table sets forth the components of net investment income for the three and nine months ended September 30, ~~2019~~2020 and ~~2018:~~2019:


($ millions)	Three months ended September 30						Nine months ended September 30						($ millions)	Three months ended September 30						Nine months ended September 30
	2019			2018			2019			2018				2020			2019			2020			2019
Gross investment income:													Gross investment income:
Fixed maturities	$	15.3		$	16.4		$	47.7		$	49.4		Fixed maturities	$	15.0		$	15.3		$	44.6		$	47.7
Equity securities	3.0			3.0			8.9			8.6			Equity securities	2.1			3.0			7.8			8.9
Other	1.1			1.7			4.2			5.2			Other	0.9			1.1			2.7			4.2
Total gross investment income	19.4			21.1			60.8			63.2			Total gross investment income	18.0			19.4			55.1			60.8
Less: Investment expenses	0.1			0.3			0.4			1.0			Less: Investment expenses	0.1			0.1			0.6			0.4
Net investment income	$	19.3		$	20.8		$	60.4		$	62.2		Net investment income	$	17.9		$	19.3		$	54.5		$	60.4

Average invested assets (at cost)	$	2,638.0		$	2,692.3		$	2,648.4		$	2,672.1		Average invested assets (at cost)	$	2,512.9		$	2,638.0		$	2,537.6		$	2,648.4
Annualized investment yield	2.9		%	3.1		%	3.0		%	3.1		%	Annualized investment yield	2.8		%	2.9		%	2.9		%	3.0		%
Annualized investment yield, after tax	2.4		%	2.5		%	2.5		%	2.5		%	Annualized investment yield, after tax	2.3		%	2.4		%	2.4		%	2.5		%
Net investment income, after tax	$	16.0		$	17.0		$	49.8		$	50.9		Net investment income, after tax	$	14.7		$	16.0		$	44.8		$	49.8
Effective tax rate	9.4		%	18.5		%	17.9		%	18.2		%	Effective tax rate	17.7		%	9.4		%	17.9		%	17.9		%

The following table sets forth realized gains (losses) and the proceeds received from the sale of our investment portfolio for the three and nine months ended September 30, ~~2019~~2020 and ~~2018:~~2019:


($ in millions)	Three months ended September 30									Nine months ended September 30										($ in millions)	Three months ended September 30								Nine months ended September 30
	2019					2018				2019					2018						2020				2019				2020				2019
	Realized gains (losses)			Proceeds received on sale		Realized gains (losses)		Proceeds received on sale		Realized gains (losses)			Proceeds received on sale		Realized gains (losses)			Proceeds received on sale			Realized gains (losses)		Proceeds received on sale		Realized gains (losses)		Proceeds received on sale		Realized gains (losses)		Proceeds received on sale		Realized gains (losses)		Proceeds received on sale
Realized gains:																				Realized gains:
Fixed maturities	$	1.2		$	50.0	$	—	$	8.8	$	2.8		$	248.7	$	1.7		$	69.7	Fixed maturities	$	1.3	$	27.8	$	1.2	$	50.0	$	6.8	$	192.2	$	2.8	$	248.7
Equity securities	0.2			4.1		1.0		7.3		1.7			14.3		6.0			83.0		Equity securities	4.0		18.9		0.2		4.1		6.3		31.1		1.7		14.3

Total realized gains	1.4			54.1		1.0		16.1		4.5			263.0		7.7			152.7		Total realized gains	5.3		46.7		1.4		54.1		13.1		223.3		4.5		263.0
Realized losses:																				Realized losses:
Fixed maturities																				Fixed maturities	(1.5)		—		—		—		(3.6)		23.9		—		—
Equity securities	(2.0		)	10.0		—		0.1		(4.2		)	20.1		(0.6		)	6.3		Equity securities	(46.3)		37.3		(2.0)		10.0		(57.2)		55.1		(4.2)		20.1
Other invested assets	—			0.4		—		0.2		—			1.0		—			0.9		Other invested assets	—		0.3		—		0.4		—		0.9		—		1.0
Total realized losses	(2.0		)	10.4		—		0.3		(4.2		)	21.1		(0.6		)	7.2		Total realized losses	(47.8)		37.6		(2.0)		10.4		(60.8)		79.9		(4.2)		21.1
Net realized (losses) gains on investments	$	(0.6	)	$	64.5	$	1.0	$	16.4	$	0.3		$	284.1	$	7.1		$	159.9	Net realized (losses) gains on investments	$	(42.5)	$	84.3	$	(0.6)	$	64.5	$	(47.7)	$	303.2	$	0.3	$	284.1

When a fixed maturity ~~security~~ has been determined to have an ~~other-than-temporary decline in fair value,~~impairment, the impairment charge ~~is separated into an amount~~ representing the credit loss ~~which~~ 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 ~~which~~ is recognized in accumulated other comprehensive ~~income. See “Management’s Discussion~~income and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies – Investments” included in Item 7 of the 2018 Form 10-K for other-than-temporary impairment (“OTTI”) indicators. Futurefuture increases or decreases in fair value, if not ~~other-than-temporary,~~credit losses, are included in accumulated other comprehensive (loss) income.

We reviewed our available-for-sale fixed maturities at September 30, 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

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Gross Unrealized Investment Gains and Losses

Based upon our review of our investment portfolio at September 30, ~~2019,~~2020, 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 ~~lot~~investment category at fair value for our gross unrealized holding gains (losses) at September 30, ~~2019:~~2020:


($ millions, except # of positions)	Cost or amortized cost		Gross unrealized holding gains		Number of gain positions	Gross unrealized holding losses			Number of loss positions	Fair value		($ millions, except # of positions)	Cost or amortized cost		Gross unrealized holding gains		Gross unrealized holding losses		Fair value
Available-for-sale fixed maturities:												Available-for-sale fixed maturities:
U.S. treasury securities and obligations of U.S. government agencies	$	516.4	$	14.8	40	$	(1.2	)	25	$	530.0	U.S. treasury securities and obligations of U.S. government agencies	$	510.9	$	48.1	$	—	$	559.0
Obligations of states and political subdivisions	415.3		21.8		89	—			1	437.1		Obligations of states and political subdivisions	527.5		26.7		(1.5)		552.7
Corporate securities	492.3		10.9		58	(1.1		)	11	502.1		Corporate securities	451.7		21.9		—		473.6
U.S. government agencies mortgage-backed securities	705.0		18.2		63	(3.1		)	42	720.1		U.S. government agencies mortgage-backed securities	557.0		25.3		(1.3)		581.0
Total available-for-sale fixed maturities	$	2,129.0	$	65.7	250	$	(5.4	)	79	$	2,189.3	Total available-for-sale fixed maturities	$	2,047.1	$	122.0	$	(2.8)	$	2,166.3

The following table sets forth our unrealized holding gains ~~by investment type,~~for our available-for-sale fixed maturities, net of deferred tax that was included as a component of accumulated other comprehensive ~~income~~loss at September 30, ~~2019,~~2020, and December 31, ~~2018,~~2019, and the change in unrealized holding gains, net of deferred tax, for the nine months ended September 30, ~~2019:~~2020:


($ millions)	September 30, 2020		December 31, 2019		$ Change
Available-for-sale investments:
Unrealized holding gains:
Fixed maturities	$	119.2	$	47.9	$	71.3
Net deferred federal income tax	(25.0)		(10.0)		(15.0)
Unrealized gains, net of tax	$	94.2	$	37.9	$	56.3

($ millions) September 30, 2019 December 31, 2018 $ Change
Available-for-sale investments:
Unrealized holding gains (losses):
Fixed maturities $ 60.3
$ (28.7 ) $ 89.0
Net deferred federal income tax (12.6 ) 6.1
(18.7 )
Unrealized gains (losses), net of tax $ 47.7
$ (22.6 ) $ 70.3

At September 30, 2020, 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 3,4, “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, ~~2019,~~2020, and December 31, ~~2018.~~

2019.

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STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Other Items

Income Taxes

The following table sets forth the components of our federal income tax (benefit) expense for the three and nine months ended September 30, ~~2019~~2020 and ~~2018, respectively.~~2019.


($ millions)	Three months ended September 30					Nine months ended September 30						($ millions)	Three months ended September 30				Nine months ended September 30
	2019		2018			2019			2018				2020		2019		2020		2019
Income before federal income taxes	$	12.7	$	41.0		$	66.7		$	45.4
Income (loss) before federal income taxes												Income (loss) before federal income taxes	$	14.8	$	12.7	$	(87.6)	$	66.7
Federal income tax expense (benefit)												Federal income tax expense (benefit)
Current	—		(0.1		)	(0.4		)	(1.1		)	Current	—		—		(0.4)		(0.4)
Deferred	1.2		7.7			12.4			9.2			Deferred	3.2		1.2		(18.5)		12.4
Total federal income tax expense	1.2		7.6			12.0			8.1
Net income	$	11.5	$	33.4		$	54.7		$	37.3
Total federal income tax expense (benefit)												Total federal income tax expense (benefit)	3.2		1.2		(18.9)		12.0
Net income (loss)												Net income (loss)	$	11.6	$	11.5	$	(68.7)	$	54.7

The effective tax ~~rates~~rate for the three and nine months ended September 30, ~~2019, were~~2020 was 21.4% and 21.5%, respectively, compared to 9.4% and 17.9%, respectively, ~~compared to 18.6% and 17.8%, respectively,~~ for the same ~~2018~~2019 periods.

We have foreign tax credit carryforwards of $0.5 million which will expire in 2021 and 2022. We believe it is more likely than not that the benefit from these foreign tax credit carryforwards will not be realized. In recognition of this risk, we have provided a valuation allowance of $0.5 million on the deferred tax assets related to these foreign tax credit carryforwards.

For additional information, see Note 610 of our condensed consolidated financial statements included in Item 1 of this Form 10-Q.

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STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

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’s~~&C has a $100.0 million ~~FHLB Line~~line of ~~Credit is~~credit in place with the FHLB available for general corporate purposes such as funding liquidity needs. See “Borrowing Arrangements - FHLB ~~Line of Credit” included in this Item 2.~~Loans” described below.

Under the terms of the Pooling Arrangement, each period State Auto Mutual ~~receives~~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 ~~pool participants~~STFC Pooled Companies with full credit for the net premiums written and net of losses paid during the quarter, retaining all receivable amounts from insureds and agents and reinsurance recoverable on paid losses from unaffiliated reinsurers. Any receivable amounts that are ultimately deemed to be uncollectible are charged-off by State Auto Mutual and allocated to the pool participant on the basis of its pooling percentage.quarter.

As a result of the Pooling Arrangement, we have an off-balance sheet credit risk related to the balances due to State Auto Mutual from insureds, agents and reinsurers, which are offset by the unearned premiums from the respective policies. 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. ~~Based on historical data, this credit risk exposure is not considered to be material to our financial position, though the impact to income on a quarterly basis may be material.~~ 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. ~~The amounts deemed~~In addition to reliance upon recent and historical collection trends, determination of the allowance for uncollectible premiums receivable at September 30, 2020 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 ~~Mutual and~~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 ~~STFC Pooled Companies are~~basis of pool participation and is included in the ~~other expenses line item~~quarterly settlement of intercompany balances. This is included in "other expenses" on the ~~accompanying~~condensed consolidated statements of ~~income.~~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, ~~2019.~~2020.

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, ~~2019,~~2020, and December 31, ~~2018,~~2019, we had ~~$38.3~~$131.4 million and ~~$59.8~~$78.0 million, respectively, in cash and cash equivalents, and ~~$2,627.2~~$2,568.3 million and ~~$2,523.3~~$2,592.8 million, respectively, of total investments. Our available-for-sale fixed maturities included ~~$9.3~~$9.6 million and ~~$8.9~~$9.3 million of securities on deposit with insurance regulators as required by law at September 30, ~~2019,~~2020, and December 31, ~~2018;~~2019; 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.

In May 2009, we entered into two separate credit agreements with State Auto Mutual pursuant to which we loaned State Auto Mutual a total of $70.0 million. In May 2019, we refinanced the two credit agreements with State Auto Mutual at a fixed annual interest rate of 4.05% (the prior fixed annual interest rate was 7.00%), with interest payable semi-annually and principal payable in May 2029.

Cash provided by operating activities was $21.8 million and cash used in operating activities was $43.9 ~~million compared to $30.3~~ million for the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Net cash from operations will vary from period to period if

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STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

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.

Cash provided by investing activities was ~~$31.1~~$42.8 million ~~and cash used in investing activities was $10.0~~compared to $31.1 million for the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The change was primarily driven by ~~increases in~~ the ~~proceeds from~~sale of our MLP ETFs during the ~~sales and maturities of fixed maturities partially offset by an increase in the purchases of fixed maturities.~~2020 third quarter.

Cash used in financing activities was ~~$8.7~~$11.2 million ~~and $1.7~~compared to $8.7 million for the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The change was primarily driven by a decrease in stock option exercises ~~in the first nine months of 2019~~when compared to the same ~~2018~~2019 period.

Borrowing Arrangements

FHLB ~~Line~~Loans

On September 2, 2020, State Auto P&C retired its five-year term loan with the FHLB in the amount of ~~Credit~~$21.5 million and maturing on September 2, 2021 and replaced it with a new ten-year term loan with the FHLB in the amount of $21.5 million (the “2020 FHLB Loan”). The 2020 FHLB Loan is at a fixed rate of interest of 1.37%, 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 2020 FHLB Loan is fully secured by a pledge of specific investment securities of State Auto P&C.

State Auto P&C has an Open Line of Credit Commitment (the "OLC") with the FHLB that provides State Auto P&C with a $100.0 million one-year open line of credit available for general corporate purposes. The OLC matures in April ~~2020.~~2021. Draws under the OLC are to be funded atwith a daily variable rate advance with a term of no more than 180 days with interest payable monthly. All advances under the OLC are ~~to be~~ fully secured by a pledge of specific investment securities of State Auto P&C. As of September 30, ~~2019,~~2020, no advances had been made under the OLC.

~~FHLB Loans~~

On March 19, 2020, State Auto P&C ~~has outstanding two term loans~~entered into a short-term loan arrangement with the FHLB in the principal ~~amounts~~amount of ~~$21.5 million~~$60.0 million. This loan arrangement, known as REPO based advances, was for general corporate purposes and was intended to provide additional liquidity to State Auto P&C. The REPO based advances were repaid in full on September 22, 2020, and this loan arrangement was terminated.

State Auto P&C also has an outstanding term loan with the FHLB in the principal amount of $85.0 million ~~respectively~~ (the ~~“2016 FHLB Loan” and~~ "2018 FHLB Loan", respectively). The 2016 FHLB Loan matures in September 2021 and may be prepaid without penalty. The 2016 FHLB Loan 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 1.73%). 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 ~~2016 and~~ 2018 FHLB ~~Loans are~~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, 2020, and 2019 were 4.44% and ~~2018 were~~ 6.33% ~~and 6.52%~~, 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

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

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, ~~2019.~~2020. Under this reinsurance agreement, we retain the first ~~$75.0~~$90.0 million of catastrophe loss, each occurrence, with a 5.0% co-participation on the next ~~$125.0~~$180.0 million of covered loss, each ~~occurrence.~~occurrence which is broken down into two layers of $70.0 million and $110.0 million. The reinsurers are responsible for 95.0% of the catastrophe losses excess of ~~$75.0~~$90.0 million up to ~~$200.0~~$270.0 million, each occurrence. The State Auto Group is responsible for catastrophe losses above ~~$200.0~~$270.0 million. There is also an automatic restatement of the limit, for ~~125%~~100% of the deposit premium.

Property Per Risk Treaty

As of ~~July~~April 1, ~~2019,~~2020, the State Auto Group renewed the property per risk excess of loss reinsurance ~~agreement. This~~agreement for a 15-month term. Under this reinsurance agreement, ~~provides individual property risk coverage for~~ the State Auto Group ~~for losses exceeding~~retains the first $4.0 million of covered loss, with a 19.5% co-participation on the next $6.0 million of covered loss and a 14.0% co-participation on covered loss between $10.0 million and $20.0 million. The reinsurers are responsible for ~~100.0%~~80.5% of the loss excess of the $4.0 million retention ~~for property business~~up to $10.0 million and 86.0% of the loss excess of $10 million up to $20.0 ~~million of covered loss.~~million.

Casualty and Workers' Compensation Treaties

As of July 1, ~~2019,~~2020, 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

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~~STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES~~

~~(a majority-owned subsidiary of State Automobile Mutual Insurance Company)~~

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.

~~Oil & Gas Quota Share~~

Effective March 1, 2018, the State Auto Group entered into a quota share agreement ("Oil & Gas Quota Share") covering its gas & propane distribution book of business. The Oil & Gas Quota Share expired February 28, 2019 on a run-off basis.

Regulatory Considerations

At September 30, ~~2019,~~2020, all of our insurance subsidiaries were in compliance with statutory requirements relating to capital adequacy.

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STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

ADOPTION OF RECENT ACCOUNTING PRONOUNCEMENTS

~~Leases~~

~~In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)" that amended previous guidance~~For information on ~~lease accounting. The new guidance requires the recognition~~this topic, see Note 1 of ~~lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. The guidance became effective January 1, 2019 and did not have a material impact on~~ our ~~results of operations,~~condensed consolidated financial ~~position or cash flows. As permitted by the guidance, we elected the practical expedients contained~~statements included in ~~ASC 842-10-65-1(f) and therefore did not reassess the lease classification~~Item 1 of ~~our existing leases.~~this Form 10-Q.

CREDIT AND FINANCIAL STRENGTH RATINGS

On ~~June 20, 2019,~~July 16, 2020, A.M. Best ~~reaffirmed~~affirmed the State Auto Group’s financial strength rating of A- (Excellent) with a stable outlook.

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 ~~2018~~2019 Form 10-K. There have been no material changes from the information reported regarding Market Risk in the ~~2018~~2019 Form 10-K.

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STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Item 3. Quantitative and Qualitative Disclosure of Market Risk

The information called for by this item is provided in this Form 10-Q under the caption “Market Risk” under Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Item 4. Controls and Procedures

Disclosure Controls and Procedures

With the participation of our principal executive officer and principal financial officer, our management has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this report. Based upon that evaluation, our principal executive officer and principal financial officer have concluded that, as of the end of the period covered by this report:


1.	Information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission;


2.	Information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure; and


3.	~~Our disclosure controls and procedures are effective in timely making known to them material information required to be included in our periodic filings with the Securities and Exchange Commission.~~

1.Information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission;

2.Information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure; and

3.Our disclosure controls and procedures are effective in timely making known to them material information required to be included in our periodic filings with the Securities and Exchange Commission.

Changes in Internal Control over Financial Reporting

There has been no change in our internal controls over financial reporting that occurred during the most recent fiscal quarter that has materially affected, nor is it likely to materially affect, our internal control over financial reporting.

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STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

Risks Related to COVID-19

The COVID-19 pandemic has had, and has the potential to continue to have for the foreseeable future, a significant adverse impact on the global economy. Due to the size and breadth of this pandemic, all of the direct and indirect consequences of COVID-19 are not yet known and will likely continue to emerge over time. The most significant risks and uncertainties presented to State Auto Financial by this pandemic are discussed below.

Legislative, regulatory and judicial actions as a result of COVID-19 could have a material adverse impact on our operations, financial position, liquidity, and cash flows and, potentially, our solvency.

In our commercial insurance segment, we write insurance covering business interruption. In general, business interruption insurance is intended to compensate an insured for income lost during instances of direct physical damage to covered property. Our business interruption insurance is not intended to provide coverage for business closures in connection with human infectious disease epidemics or pandemics. There are efforts at the state and federal levels to implement legislation that would expand the scope of business interruption insurance to include business closures related to COVID-19, although we are not aware of any such legislation being enacted at this time. In addition, putative class action litigation has been initiated against us and many other insurers regarding the denial of business interruption coverage claims for business closures related to COVID-19. We intend to vigorously challenge any claims that our business interruption insurance covers business closures related to COVID-19. If legislation would be enacted in states where we do business to expand the scope of business interruption insurance to include COVID-19 business closures, or judicial decisions of courts in such states found that business interruption coverage included COVID-19 business closures, such legislation or judicial decisions would have ~~been no~~a material adverse effect on our results of operations, liquidity, financial condition, and cash flows, and, potentially, our solvency.

As a result of COVID-19, many states have either mandated insurers provide grace periods for the payment of premiums or requested insurers provide such grace periods in the event an insured requests a payment deferral. To date, we have complied with these payment extension periods in those states where we do business.

Furthermore, some states have issued regulatory guidance encouraging premium relief or a return of premium to insureds. While we are voluntarily, under certain circumstances and subject to regulatory approval, providing a 5% discount to our personal auto insureds upon future renewal of their existing policies, if states where we do business were to mandate such type of premium action beyond what we have implemented, such action could have a material adverse effect on our results of operations and cash flows.

Concerns about COVID-19 have caused market volatility, which has negatively impacted our investment portfolio. The extent of the negative impact will depend on the length of this pandemic and is highly uncertain.

Our investment portfolio is invested mostly in fixed income securities the majority of which consists of securities issued by the U.S. Treasury, federal agencies, and state and local governments. Our portfolio also contains a number of securities issued by corporations. Concerns about COVID-19 have caused a sharp increase in volatility in financial markets, which has had a significant negative impact on our investment portfolio. A prolonged economic recession caused by COVID-19 could negatively impact the financial condition of corporate issuers in our portfolio, resulting in rating downgrades or an inability to make timely principal and or interest payments. It is possible we could suffer a partial or complete loss of principal from an issuer who fails to meet its obligations. Our portfolio could suffer large decreases in market value if the economic crisis deepens and the financial solvency of issuers are called into question. Likewise, our exposure to state and local governments carries risk of loss in an economic downturn. A reduction in tax collections for local governments can cause them to default on interest or principal payments resulting in permanent loss of principal from our portfolio. The value of our equity portfolio, which consists of mutual funds, exchange traded funds, and individual company holdings, is impacted by economic activity in the United States and around the world. Mutual funds and exchange traded funds can be expected to exhibit less volatility than an individual company security, but these funds are exposed to economic risk as well. Depending upon the length and depth of the pandemic, it is possible that companies in which we have invested could become bankrupt or cease doing business. As a result, our portfolio could suffer a permanent loss of capital. It is also possible that equity prices could remain depressed for an extended period of time. Portfolio dividend income can also decline as companies reduce or eliminate dividends as they look for ways to survive in a difficult economy.

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STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Changes in economic conditions could lead to inflation.

Reactions to COVID-19 by federal and state governmental agencies, including the Federal Reserve, and consumers could lead to higher inflation, which can in turn result in an increase in our loss costs, ultimately resulting in the need to strengthen loss and loss adjustment expense reserves. The impact of inflation could be greater on our longer tail casualty claim liabilities. In addition, inflation may cause changes in interest rates which can affect the market value of our fixed income investments.

With most of our associates working remotely during this pandemic, we have a greater risk to cybersecurity threats.

As a result of COVID-19, we have approximately 90% of our associates working remotely. While we have implemented enhanced procedures and protocols to protect the security of our data and systems, having a remote workforce increases our risk ~~factors from those disclosed~~to successful cybersecurity attacks. Furthermore, there has been an increase in phishing and other social engineering attacks focused on COVID-19. These attacks typically come in the ~~2018 Form 10-K under Part I, Item 1A – Risk Factors.~~form of malicious links or emails, but they could involve phone calls or text messages as well. These cyberattacks, if successful, could interrupt, damage or otherwise adversely affect the operation of our critical systems.

A significant interruption or major failure of the Internet would have an adverse effect on our ability to write and process new and renewal business, provide customer service, receive premium payments, pay claims in a timely manner or perform other necessary corporate functions, which would result in a materially adverse effect on our business and may cause reputational damage.

Our ability to execute necessary business functions, such as online support and 24-hour claims contact centers, processing new and renewal business, receiving and processing payment receipts and processing and paying claims in an efficient and uninterrupted fashion is highly dependent upon the Internet and related technology. Because many businesses are deploying a remote workforce as a result of COVID-19, Internet usage has increased significantly. A significant interruption or major failure of the Internet would substantially impair our ability to perform daily functions on a timely basis and could result in a material adverse impact on our operations.

COVID-19 has had and will have an impact on our revenues.

Due to COVID-19’s impact on economic activity, we began to experience reduced quote and policy issuance volumes in certain lines of business beginning in mid-March 2020. Given the unprecedented nature of COVID-19, at this time it is not possible to accurately project the degree or duration of the continued impact.

We may experience changes to frequency and severity of claims in certain lines of business.

As a result of COVID-19, we may experience higher claim and claim adjustment expenses in certain lines of business, such as workers’ compensation, if the injury or illness arose both out of and in the course of employment.

We may also see an impact on our auto and property coverages due to changes in both business practices and individual behaviors. For example, there has been an increase in delivery services due to concerns with in-person contact. We may see an increase in commercial property claims due to unoccupied businesses. Since the outset of the pandemic, there has been a decrease in frequency of personal auto claims attributed to a reduction in miles driven by insureds as a result of people working remotely and staying at home more because of COVID-19 concerns. The duration of this decrease and its impact to severity is unknown at this time.

Further, because the risks associated with COVID-19 are so unknown at this time we may experience uncertainty in estimating claims. We may also experience an increase in fraudulent claims, and there may be an impact in the timing of claims settlements as a result of court delays.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

Item 6. Exhibits

Exhibit
No.

Description of Exhibits

~~Exhibit~~

~~No.~~

31.01

~~Description of Exhibits~~

~~31.01~~

CEO certification required by Section 302 of Sarbanes Oxley Act of 2002

31.02

CFO certification required by Section 302 of Sarbanes Oxley Act of 2002

32.01

CEO certification required by Section 906 of Sarbanes Oxley Act of 2002

32.02

CFO certification required by Section 906 of Sarbanes Oxley Act of 2002

101.INS

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101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

(a majority-owned subsidiary of State Automobile Mutual Insurance Company)

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


		State Auto Financial Corporation

		~~State Auto Financial Corporation~~

Date: November ~~1, 2019~~6, 2020	/s/ Steven E. English
		Steven E. English
		Chief Financial Officer
		(Duly Authorized Officer and
		Principal Financial Officer)


Ohio						31-1324304
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

~~Ohio~~				~~31-1324304~~
~~(State or other jurisdiction of~~ ~~incorporation or organization)~~		~~(I.R.S. Employer~~ ~~Identification No.)~~

518 East Broad Street	Columbus		Ohio		43215-3976
(Address of principal executive offices)						(Zip Code)



Title of each class	Trading symbol	Name of each exchange on which registered
Common shares, without par value	STFC	The NASDAQ Global Select Market



Large accelerated filer	☐	Accelerated filer	x
Non-accelerated filer	☐	Smaller reporting company	☐
(Do not check if a smaller reporting company)		Emerging growth company	☐



☒			Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934



☐			Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934



($ in millions)
Three months ended September 30, 2018	Personal & Commercial			Specialty run-off			Total

Net written premiums	$	312.9		$	(0.5	)	$	312.4
Net earned premiums	288.2			18.6			306.8
Losses and LAE incurred:
Cat loss and ALAE	15.9			0.4			16.3
Non-cat loss and ALAE
Prior accident years non-cat loss and ALAE	(19.9		)	1.8			(18.1		)
Current accident year non-cat loss and ALAE	163.7			11.4			175.1
Total non-cat loss and ALAE	143.8			13.2			157.0
Total Loss and ALAE	159.7			13.6			173.3
ULAE	17.3			0.8			18.1
Total Loss and LAE	177.0			14.4			191.4
Underwriting expenses	109.5			2.3			111.8
Net underwriting gain	$	1.7		$	1.9		$	3.6

Cat loss and ALAE ratio	5.5		%	2.2		%	5.3		%
Non-cat loss and ALAE ratio
Prior accident years non-cat loss and ALAE ratio	(6.9		)%	9.4		%	(5.9		)%
Current accident year non-cat loss and ALAE ratio	56.8		%	62.1		%	57.1		%
Total non-cat loss and ALAE ratio	49.9		%	71.5		%	51.2		%
Total Loss and ALAE ratio	55.4		%	73.7		%	56.5		%
ULAE ratio	6.0		%	3.9		%	5.9		%
Total Loss and LAE ratio	61.4		%	77.6		%	62.4		%
Expense ratio	35.0		%	(439.2		)%	35.8		%
Combined ratio	96.4		%	(361.6		)%	98.2		%



($ in millions)
Three months ended September 30, 2018	Commercial Auto			Small Commercial Package			Middle Market Commercial			Workers' Comp			Farm & Ranch			Other Commercial			Total

Net written premiums	$	19.1		$	29.1		$	30.7		$	24.1		$	10.7		$	3.9		$	117.6
Net earned premiums	18.8			30.5			29.4			21.3			11.3			3.9			115.2
Losses and LAE incurred:
Cat loss and ALAE	(0.4		)	2.1			0.5			—			0.8			0.1			3.1
Non-cat loss and ALAE
Prior accident years non-cat loss and ALAE	(1.1		)	(1.8		)	(2.1		)	(2.5		)	(1.0		)	(1.8		)	(10.3		)
Current accident year non-cat loss and ALAE	11.5			18.5			18.7			14.3			6.5			2.3			71.8
Total non-cat loss and ALAE	10.4			16.7			16.6			11.8			5.5			0.5			61.5
Total Loss and ALAE	10.0			18.8			17.1			11.8			6.3			0.6			64.6
ULAE	0.9			1.8			1.6			1.8			0.3			0.2			6.6
Total Loss and LAE	10.9			20.6			18.7			13.6			6.6			0.8			71.2
Underwriting expenses	8.8			12.7			12.5			7.4			5.5			2.3			49.2
Net underwriting (loss) gain	$	(0.9	)	$	(2.8	)	$	(1.8	)	$	0.3		$	(0.8	)	$	0.8		$	(5.2	)

Cat loss and ALAE ratio	(1.8		)%	6.8		%	1.7		%	—		%	7.3		%	2.1		%	2.7		%
Non-cat loss and ALAE ratio
Prior accident years non-cat loss and ALAE ratio	(5.9		)%	(5.8		)%	(7.3		)%	(12.0		)%	(8.2		)%	(44.6		)%	(8.9		)%
Current accident year non-cat loss and ALAE ratio	60.9		%	60.6		%	63.6		%	67.5		%	57.5		%	60.8		%	62.4		%
Total non-cat loss and ALAE ratio	55.0		%	54.8		%	56.3		%	55.5		%	49.3		%	16.2		%	53.5		%
Total Loss and ALAE ratio	53.2		%	61.6		%	58.0		%	55.5		%	56.6		%	18.3		%	56.2		%
ULAE ratio	5.1		%	5.7		%	5.3		%	8.1		%	2.4		%	6.5		%	5.7		%
Total Loss and LAE ratio	58.3		%	67.3		%	63.3		%	63.6		%	59.0		%	24.8		%	61.9		%
Expense ratio	46.3		%	43.6		%	40.5		%	30.5		%	51.5		%	57.7		%	41.8		%
Combined ratio	104.6		%	110.9		%	103.8		%	94.1		%	110.5		%	82.5		%	103.7		%



($ in millions)
Nine months ended September 30, 2019	Commercial Auto			Small Commercial Package			Middle Market Commercial			Workers' Comp			Farm & Ranch			Other Commercial			Total

Net written premiums	$	81.4		$	92.0		$	115.1		$	58.8		$	37.4		$	14.1		$	398.8
Net earned premiums	65.3			88.9			98.1			60.3			36.2			12.6			361.4
Losses and LAE incurred:
Cat loss and ALAE	0.2			6.1			5.7			—			2.5			—			14.5
Non-cat loss and ALAE
Prior accident years non-cat loss and ALAE	(3.6		)	(11.8		)	(7.2		)	(13.4		)	(1.9		)	(1.4		)	(39.3		)
Current accident year non-cat loss and ALAE	41.2			51.3			62.2			42.3			18.0			7.7			222.7
Total non-cat loss and ALAE	37.6			39.5			55.0			28.9			16.1			6.3			183.4
Total Loss and ALAE	37.8			45.6			60.7			28.9			18.6			6.3			197.9
ULAE	4.2			4.8			5.0			5.4			1.5			0.5			21.4
Total Loss and LAE	42.0			50.4			65.7			34.3			20.1			6.8			219.3
Underwriting expenses	33.6			36.0			46.0			20.2			17.4			6.0			159.2
Net underwriting (loss) gain	$	(10.3	)	$	2.5		$	(13.6	)	$	5.8		$	(1.3	)	$	(0.2	)	$	(17.1	)

Cat loss and ALAE ratio	0.4		%	6.9		%	5.8		%	—		%	6.8		%	—		%	4.0		%
Non-cat loss and ALAE ratio
Prior accident years non-cat loss and ALAE ratio	(5.5		)%	(13.3		)%	(7.4		)%	(22.1		)%	(5.2		)%	(11.2		)%	(10.9		)%
Current accident year non-cat loss and ALAE ratio	62.9		%	57.7		%	63.4		%	70.2		%	49.7		%	61.7		%	61.7		%
Total non-cat loss and ALAE ratio	57.4		%	44.4		%	56.0		%	48.1		%	44.5		%	50.5		%	50.8		%
Total Loss and ALAE ratio	57.8		%	51.3		%	61.8		%	48.1		%	51.3		%	50.5		%	54.8		%
ULAE ratio	6.5		%	5.4		%	5.1		%	8.9		%	4.2		%	4.3		%	5.9		%
Total Loss and LAE ratio	64.3		%	56.7		%	66.9		%	57.0		%	55.5		%	54.8		%	60.7		%
Expense ratio	41.3		%	39.1		%	40.0		%	34.4		%	46.6		%	41.7		%	39.9		%
Combined ratio	105.6		%	95.8		%	106.9		%	91.4		%	102.1		%	96.5		%	100.6		%