State Auto Financial Corporation

Welcome and thank you for standing by. At this time, all parties are in a listen-only mode. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Today's call is being recorded. If you have any objections, please disconnect at this time. I would now like to turn the call over to Natalie Schoolcraft, Controller and Investor Relations Director of State Auto Financial Corporation.

Thank you, Lori. Good morning, everyone. Welcome to our first quarter 2021 earnings conference call. Today, I'm joined by our Chairman, President, and CEO, Mike Larocco, Senior Vice President and CFO, Steve English, Senior Vice President of Personal and Commercial Lines and Managing Director of State Auto Labs, Kim Garland, Senior Vice President of Data and Analytics, Jason Berkey, Chief Actuarial Officer, Matt Mrozik, and Chief Investment Officer, Scott Jones. After our prepared remarks, we'll open the lines for questions. Our comments today may include forward-looking statements, which by their nature involve a number of risk factors and uncertainties which may affect future financial performance. Such risk factors may cause actual results to differ materially from those contained in our projections or forward-looking statements. These types of factors are discussed at the end of our press release, as well as in our annual and quarterly filings with the Securities and Exchange Commission. Financial schedules containing reconciliations of certain non-GET measures, along with other supplemental financial information, are included as part of our press release. Additional material titled Monitoring Our Progress has been made available on our website, stateauto.com, and along with the press release can be found under the Investor section. Now I'll turn the call over to SDFC's Chairman, President, and CEO, Mike La Rocco.

Thank you, Nat, and good morning, everyone. I hope you and your families continue to be safe and healthy as we navigate what we all hope is the final stretch of the pandemic. We just completed a very solid first quarter, coming on the heels of an excellent fourth quarter. Obviously, the headline numbers do not look great, but we all know they do not tell the full story. The freeze that primarily hit Texas was the event that drove those headline numbers. It was both unusual and due to Texas infrastructure weaknesses, worse than it should have been. Regardless, this catastrophe drove the overall combined ratio for the quarter, and unless one takes the time to pull back the covers, overshadowed what was a strong quarter for State Auto. Let's look under the covers. We've been telling you about our efforts to get Otto back to profitability. Last quarter, I made it clear that we're optimistic that we had turned the corner and expected Otto to be profitable in 2021. I'm pleased that the first quarter results showed all of our hard work is delivering. To be clear, we still have much work ahead and no one is declaring victory. But we are pleased with our progress to date and remain confident Otto will return to consistent profitability. The Texas freeze was primarily a homeowner's event, and that can be seen in those results. While Kim will cover this in more detail, I remain happy with this business and the way we've designed the product and how we're leveraging technology with regards to risk evaluation and inspection. Homeowner's insurance pricing and underwriting is changing rapidly with advancing technology, and we are built for those changes. Commercial lines continue to perform exceptionally well in terms of both profitability and growth. The turnaround over the last five years has been remarkable, and we are only on the cusp of what we can achieve across these products. As a regional, it's critical to be as diverse as possible, both geographically and by product. We are beginning to deliver on both. The product diversity can once again be seen in this quarter's commercial results. It's also important to note that every product line except homeowners and Bob were profitable in the first quarter. The only two lines that missed were disproportionately impacted by an unusually bad first quarter cat event. Applying any average first quarter cat load over the last five or 10 years and using that lens to review results would show that we indeed did have a solid first quarter. I'm also pleased with our continued efforts to drive down our expense ratio. We've taken out a lot of unnecessary expense over the last six years and continue to push process improvement, leveraging both technology and operational change. While these efforts are ongoing, we know that the biggest opportunity is achieving scale. We now have all our products on our Connect platform, a truly amazing accomplishment in five-and-a-half-year time periods. In addition, we have rebuilt all of the products that were put on that platform. This work has resulted in an industry-leading digital platform and products that are supported by sophisticated pricing models and strong underwriting. Our solid non-cap loss ratios reflect these efforts. While we will continue to get better with both platform and products, the key pieces are in place. Now it's about adding profitable volumes, which will drive down the expense ratios. In the coming quarters and years, we are built to do just that. The industry continues to receive primarily good news regarding COVID business interruption claims. While there have been no changes on our limited number of cases, the industry trends bolster our cautious optimism on these cases. Now, a quick word on rising costs. We are clearly seeing inflationary pressure as we settle claims. There are rising prices across labor, parts and materials. As a result, we are reacting by staying ahead of these trends by taking appropriate rates. While I'm not raising an alarm, we do feel the trends are real and will impact pricing going forward. Finally, I'm certain you've seen the news, both sad and happy. that Steve will be riding off into the sunset at the end of the year. I want to take just a moment on this call to thank him for all he has done for State Auto as our CFO. I know all of you have benefited from his knowledge, insight, and unusual sense of humor. For me personally, he has been a trusted advisor and a friend. While he will be missed, I cannot be more happy for Steve and his wife, DeeDee. They are looking forward to enjoying the next part of life's journey. and especially those grandbabies. Let me turn it over to Steve.