State Auto Financial Corp. (STFC) announced that the State Auto Group has inked a one-year property aggregate excess catastrophe reinsurance agreement with an association of reinsurers covering property business underwritten by the personal insurance and business insurance segments which include automobile physical damage. The insurance subsidiaries of State Auto Financial Corporation are part of the State Auto Group. This agreement came into effect from Jan 1, 2015.
Following the announcement the State Auto Financial stock gained 1.1% and closed at $21.45 per share in the last trading session.
This new agreement took over the company’s homeowner quota share reinsurance agreement which was active for three years before its termination on Dec 31, 2014 as per its terms. During the tenure of this agreement State Auto Group ceded 75% of its homeowner business to its reinsurers.
Due to the end of the homeowner quota share reinsurance agreement, State Auto Financial is likely to get a return of $89 million in unearned premiums and $63 million in cash. The return of ceding commission to the reinsurers comes in at $26 million which will increment the deferred policy acquisition costs and reduce other liabilities.
After the retention of $165 million of losses by the State Auto Group, the new property aggregate excess catastrophe reinsurance agreement will offer PCS numbered catastrophes reinsurance coverage worth $75 million in 2015.
According to State Auto Financial’s retention under the existing property catastrophe excess of loss reinsurance agreement, individual occurrence is subject to maximum of $55 million and not for occurrences that are deductible.
These agreements help the company reduce the risk and volatility as well as free up capital that can be deployed in strategic initiatives.
Currently, State Auto Financial holds Zacks Rank #2 (Buy).
Other Stocks to Consider
Better-ranked stocks like The Allstate Corporation (ALL), Arch Capital Group Ltd. (ACGL) and Everest Re Group Ltd. (RE) sport a Zacks Rank #1 (Strong Buy).
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