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State Auto Financial Corporation Business Information, Profile, and History

518 East Broad Street
Columbus
Ohio
43215
U.S.A.

Company Perspectives

With a commitment to responsible cost-based pricing, conservative investments and sound underwriting practices, State Auto Financial Corporation has maintained a healthy financial record since becoming a public company in 1991. Combined with its focus on providing outstanding service to policyholders and agents, State Auto has earned the reputation as one of the strongest and best managed regional insurance groups in the industry. The State Auto Pool has consistently received A.M. Best Company's A+ (Superior) rating.

History of State Auto Financial Corporation

State Auto Financial Corporation is an insurance holding company for five regional insurance subsidiaries: State Auto Property and Casualty Insurance Company, Milbank Insurance Company, Farmers Casualty Insurance Company, State Auto Insurance Company of Ohio, and State Auto National Insurance Company. Through its insurance subsidiaries, State Auto Financial writes personal and commercial automobile, homeowners, commercial multi-peril, fire, and general liability insurance, serving customers in 26 states through 22,500 independent insurance agents. The company's insurance operations are supported through ten regional and branch offices. State Auto Financial also controls three non-insurance subsidiaries: Stateco Financial Services, Inc., which provides investment management services to all of the holding company's subsidiaries; Strategic Insurance Software, Inc., a developer of software that is marketed in the insurance agency management system market; and 518 Property Management and Leasing, LLC, a subsidiary that owns and leases real and personal property to other State Auto Financial subsidiaries. Policyholder-owned State Auto Mutual Insurance Company controls 67 percent of State Auto Financial.

Origins

The company at the center of a billion-dollar tug-of-war in the early 21st century began operating nearly a century earlier, formed with modest resources that hardly suggested the birth of one of the country's largest insurance companies. In 1921, Robert S. Pein borrowed $30,000 and started the State Automobile Insurance Company, the first home-office casualty company in Columbus, Ohio. Pein, motivated by his displeasure at the exorbitant rates charged by other insurers and their inept settlement of claims, promised to give Columbus residents a better alternative for their insurance needs, but it was doubtful he could have foreseen the expansion of his business into a billion-dollar corporation with operations covering more than half of the United States.

Pein's start-up capital was enough to hire three employees and rent a room in downtown Columbus. The company's trappings could not have been more humble, but Pein registered almost immediate success, enabling him and his small staff to occupy larger quarters within a short time. State Automobile Insurance, which wrote auto insurance during its first years in business, moved its headquarters twice by 1925, the year it began writing non-assessable policies, under which policyholders could not be assessed additional fees if the losses became too great. Perhaps the most notable aspect of the company's first years in business was Pein's decision to use only independent insurance agents to distribute his company's insurance products. It was a decision that became the company's policy, one that was strictly adhered to years after Pein's death, representing one of the defining characteristics of the State Auto Financial group of companies in the 21st century.

The 1930s presented a formidable challenge to virtually every type of business in the United States, presenting an exacting, determinative test of a company's durability. For State Automobile Insurance, the crucible arrived early in the company's development, making its chances at survival all that more tenuous, but the company responded to the harsh economic conditions of the Great Depression with remarkable resilience. Pein's company, it could be easily argued, thrived during the disastrous decade. As if setting the tone for the robustness the company would demonstrate during the 1930s, a new, larger headquarters building was occupied at the decade's start, the company's third move to grander quarters in nine years. Pein began expanding operations the following year, entering Kentucky, West Virginia, and Tennessee, giving State Automobile Insurance a four-state operating territory that relied on more than 700 agents.

Midway through the decade, as the Great Depression reached its trough, State Automobile Insurance exhibited even greater strength, expanding its product portfolio and its operating territory. The company was aided somewhat by the passage of two laws in Ohio, the first of which, promulgated in 1935, was a statute assigning financial responsibility to drivers. The following year, the state passed the Driver's License Law, making driving a privilege rather than a right. Because of the two laws, the number of drivers buying liability insurance increased markedly, but Ohio was not the only source of growth for Pein's enterprise. On the heels of the expansion achieved early in the decade, the company entered Maryland, South Carolina, and Michigan midway through the decade. State Automobile Insurance's growing customer base had more products to choose from as well, as the company began offering an early version of homeowners insurance and general liability coverage.

In some ways, the 1940s presented a bigger challenge than the Great Depression to State Auto Insurance, but again the company persevered, ensuring that it was well positioned to share in the explosive growth of the national economy following World War II. Several months after the United States entered the conflict, every automobile manufacturer in the country halted production of civilian passenger cars to direct their efforts fully toward the prosecution of the war. For insurers such as State Automobile Insurance who were heavily reliant on writing automobile insurance, the nation's new priorities cut off the supply of new business that would have come from the purchase of new automobiles. State Automobile Insurance withstood the shock to its operations and, by the end of the 1940s, when new automobile production soared to a near record level, the company reigned as a formidable regional force. State Automobile Insurance had $20.4 million in assets by the 1940s, issuing more than 250,000 policies and recording gross premium writings of $14.5 million during the final year of the decade.

Post-World War II Expansion

State Automobile Insurance's postwar growth was highlighted by the expansion of the company's selection of insurance offerings, vigorous geographic expansion, numerous acquisitions, and, for the first time in its history, changes in leadership. Pein began to cede control of his company in 1954, when Paul Gingher, who joined State Automobile Insurance in 1931, was named executive vice-president. Gingher was named president two years later by Pein, who assumed the role of chairman, but he occupied his new post for only a matter of months, passing away before the end of 1956. During this transition in leadership, the company added fire insurance and inland marine coverage in Ohio and certain other states in its operating territory. Once State Automobile Insurance was firmly under Gingher's control, the company began capitalizing on a new, expedient means of rounding out its product portfolio and expanding geographically by acquiring other insurers. In 1958, the company purchased two companies based in Greer, South Carolina, Dixie Fire and Casualty Co. and the Southern Home Insurance Co. The acquisitions paved the company's entry into Alabama, Georgia, Mississippi, North Carolina, South Carolina, and Virginia.

State Automobile Insurance's actions during the 1950s set the tone for the company's development in succeeding decades. The emphasis was on expansion, which often was achieved via acquisition. In 1962, the year the company began offering health insurance, its product selection was broadened further with the purchase of Columbus Mutual Life Insurance Co. The following year, the company formed a non-insurance subsidiary, Stateco, Inc., which facilitated the financing of insurance premiums. By the time State Automobile Insurance celebrated its 50th anniversary, its stature as an insurer had been elevated substantially by postwar economic growth. The $20 million in assets supporting the company at the end of the 1940s had swelled to $370 million by 1971. The company's volume of business as measured by the amount of premiums written in a year had increased exponentially as well, jumping from $14.5 million in 1949 to $127.7 million in 1971. The figure increased to $185 million by the end of the decade, when State Automobile Insurance maintained operations in 14 states.

In contrast to the expansionist mindset directing the company's movements during the 1960s and 1970s, the 1980s were characterized by streamlining efforts undertaken by the executive staff in Columbus. In 1983, Robert L. Bailey, who was named director of product services and distribution four years earlier, was named president of State Automobile Insurance, the third change in leadership after Gingher's tenure. Bailey would lead the company for the next two decades, and under his stewardship, cost-cutting measures were effected and underwriting efforts were strengthened. Bailey also emphasized a more balanced business mix, seeking to increase the company's involvement in the commercial sector. In 1984, the company derived 80 percent of its revenue from personal business, relying on commercial work for the other 20 percent. Bailey set a goal of increasing the company's commercial business to 40 percent of revenues. A decade later, he reorganized the company to achieve an even split between personal and commercial business.

Public Debut in the 1990s and Uncertainty in the 21st Century

Although each decade brought some sort of change to the company, the 1990s stood out from the rest. Expansion resumed in earnest, touched off by a move into Mississippi in 1989, but the decade's most profound event was the public debut of the enterprise Pein had created 70 years earlier. In 1991, the company completed its initial public offering (IPO) of stock, a corporate maneuver that required the formation of State Auto Financial Corporation as a holding company for all companies either formed internally or acquired during the previous decades. Policyholder-owned State Auto Mutual Insurance Co., in turn, was given a 67 percent stake in State Auto Financial. To this new structure, new assets were added throughout the decade, joining subsidiaries such as the 1958 acquisition of Southern Home, which changed its name to State Auto Property & Casualty Co., and Stateco, Inc., which lengthened its name to Stateco Financial Services, Inc. One year after the IPO, the State Auto group of companies began to grow. State Auto National was launched in Ohio to compete in the non-standard automobile market, a new venture that registered quick success, expanding into seven other states within its first four years of operation. In 1993, the group gained another member when State Auto Financial acquired Milbank Insurance Co., a Milbank, South Dakota-based insurer that provided the company with entry into markets in North Dakota, South Dakota, Minnesota, and Utah. In 1997, the acquisition of Midwest Security Insurance Co., an insurer based in Onalaska, Wisconsin, established State Auto Financial's presence in its 24th state, a purchase that was followed one year later by the addition of Des Moines, Iowa-based Farmers Casualty Co., which added two more states, Kansas and Iowa, to State Auto Financial's geographic coverage. By the end of the decade, the string of acquisitions lifted the company's annual revenues to $440 million.

In retrospect, the series of acquisitions completed during the 1990s represented a mere prelude to what would be both Bailey's masterstroke and his swan song. In October 2000, two months before Bailey's retirement, State Auto Financial announced it was acquiring Meridian Insurance Group, one of Indiana's largest insurers with $302 million in revenue. State Auto Financial's announcement ended a hostile takeover, a "bitter battle" as described by the October 26, 2000 edition of the Indianapolis Star, led by Gregory Shepard, who owned an Illinois-based insurer named American Union Insurance Co. and ranked as Meridian Insurance's largest shareholder. Shepard, who had launched his bid in August, was beaten to the punch by State Auto Financial, withdrawing his offer in December. State Auto Financial completed the transaction in June 2001, a deal that made it the 48th largest property/casualty insurer in the United States with more than $1 billion in written premiums and $2 billion in assets. The acquisition of Meridian Insurance and its largest insurance arm, Meridian Security Insurance Co., which operated in 18 states, provided an enormous boost to State Auto Financial's stature, increasing the group's penetration in a number of important Midwest states. "In virtually every respect the fit is perfect in terms of marketing systems, products, people, and philosophy," Bailey said in an October 26, 2000 interview with the Indianapolis Star. "We intend to utilize fully the skills and experience of the entire Meridian staff."

As State Auto Financial prepared for the future, a cloud of uncertainty hung over the company, representing virtually the only wrinkle in an otherwise stalwart organization. Shepard, evidently, was not as enthusiastic as Bailey about the Meridian Insurance deal. In 2003, Shepard launched a bid to acquire State Auto Financial, proposing a $256 million deal that reportedly would use State Auto Financial's existing assets as the means to finance the transaction. State Auto Financial firmly opposed the offer and urged shareholders to reject Shepard's advances, describing the takeover attempt as a "scheme" that "makes no economic sense," according to Robert Moone, Bailey's replacement, in the September 3, 2003 issue of A.M. Best Newswire. Shepard was not to be deterred, however, responding to the company's rejection by extending his bid five more times. The battle between Shepard and State Auto Financial carried on until mid-2004, when the saga gained a new protagonist. Carl Icahn, whose personal fortune eclipsed $7 billion, entered the fray, acquiring half of Shepard's two million shares for $13 per share at a time when State Auto Financial's stock was trading at $27 per share. Icahn was a well-known takeover specialist who earned his reputation during the 1980s when he spearheaded takeovers of Texaco, TWA, and USX. His intervention did little to resolve questions concerning State Auto Financial's future ownership, nor did it end speculation about Shepard's involvement in a hostile takeover attempt. "I don't know what game Shepard is playing," an analyst remarked in a May 17, 2004 interview with Mergers & Acquisitions Report, "but I know he is playing a game. The fact that one million shares in this stock are exchanging hands at $13 is so absurd I don't think anyone knows what to do with it. I just don't understand the sale."

As State Auto Financial plotted its course for the second half of the decade, industry observers continued to ponder the implications of Icahn's stock purchase.

Principal Subsidiaries

State Auto Property and Casualty Insurance Company; Stateco Financial Services, Inc.; Milbank Insurance Company; Farmers Casualty Insurance Company; State Auto Insurance Company of Ohio; State Auto National Insurance Company; Strategic Insurance Software, Inc.; 518 Property Management and Leasing, LLC; State Automobile Mutual Insurance Company; State Auto Insurance Company of Wisconsin; State Auto Florida Insurance Company; BroadStreet Capital Partners, Inc.; Meridian Citizens Mutual Insurance Company; Meridian Insurance Group, Inc.; Meridian Security Insurance Company.

Principal Competitors

The Allstate Corporation; Prudential Financial, Inc.; State Farm Mutual Automobile Insurance Company.

Related information about State

A form of political association which in the main enjoys the unique right of being able to use legitimate coercion over a particular territory. The rights and duties of office holders of the state are set down in law, including constitutional law. Many regard it as the means for achieving national unity, and throughout history several writers have attributed a mission or wider purpose to the state over and above its individual parts. Liberals tend to see it simply as an expression of the views of individuals within society. Marxists, on the other hand, see the state as an instrument of class rule. In practice, it is difficult to define precisely what constitutes the state, unless it is simply seen as a set of public rules and offices, and there is considerable disagreement over what it is and should be.

otheruses

A state is a set of institutions that possess the authority to make the rules that govern the people in one or more societies, having internal and external sovereignty over a definite territory. Hence the state includes such institutions as the armed forces, civil service or state bureaucracy, courts, and police. For theorists of international relations, recognition of the state's claim to independence by other states, enabling it to enter into international engagements, is key to the establishment of its sovereignty.

Although the term often refers broadly to all institutions of government or rule?ancient and modern?the modern state system bears a number of characteristics that were first consolidated in western Europe, beginning in earnest in the 15th century.

In the late 20th century, the globalization of the world economy, the mobility of people and capital, and the rise of many international institutions all combined to circumscribe the freedom of action of states. Political sociologists in the tradition of both Karl Marx and Max Weber usually favor a broad definition that draws attention to the role of coercive apparatus. Currently more than 200 states comprise the international community, with the vast majority of them represented in the United Nations.

Within a federal system, the term state also refers to political units, not sovereign themselves, but subject to the authority of the larger state, or federal union, such as the "states" in the United States and the L辰nder. but in a more strict usage they are distinguished:

country is the geographical area
nation designates a people, however national and international both confusingly refer as well to matters pertaining to what are strictly states, as in national capital, international law
state refers to set of governing institutions with sovereignty over a definite territory

Etymology

The word "state" originates from the medieval state or regal chair upon which the head of state (usually a monarch) would sit. A similar association of terms can today be seen in the practice of referring to government buildings as having authority, for example "The White House today released a press statement..."

State forms over time

The state in classical antiquity

In the Western world the history of the state begins in ancient Greece. Before the 4th century BCE, in the era of the Greek city-states, free members of the society were granted citizenship rights until the 'democracy' of the city-states was undermined by territorial conquest and colonization, leading to rule by royal succession by the time of Alexander the Great.

In contrast, Rome did not introduce direct democracy but developed from a monarchy into a republic, governed by a senate dominated by the Roman aristocracy. While the Greek city-states contributed to the concept of direct democracy, Rome contributed the concept of Roman law and the distinction between the private and the public spheres. In the early Middle Ages, power in the Western European state was divided up feudalized, through local proprietors whose property, gained from oaths of fealty, afforded them political authority. In these conditions, according to Marxists, their estate?the basic economic unit of society?was the state.

The state-system of feudal Europe was an unstable configuration of suzerains and anointed kings.

The "modern state"

The rise of the "modern state" as a public power constituting the supreme political authority within a defined territory is associated with western Europe's gradual institutional development beginning in earnest in the late 15th century, culminating in the rise of absolutism and capitalism.

As Europe's dynastic states?England under the Tudors, Spain under the Habsburgs, and France under the Bourbons?embarked on a variety of programs designed to increase centralized political and economic control, they increasingly exhibited many of the institutional features that characterize the "modern state." This process gave rise to the highly centralized and increasingly bureaucratic forms of absolute monarchical rule of the 17th and 18th centuries, when the principal features of the contemporary state system took form, including the introduction of a standing army, a central taxation system, diplomatic relations with permanent embassies, and the development of state economic policy?mercantilism.

Cultural and national homogenization figured prominently in the rise of the modern state system. Even in the most ethnically homogenous societies there is not always a complete correspondence between state and nation, hence the active role often taken by the state to promote nationalism through emphasis on shared symbols and national identity. Although its origins are disputed, Niccol嘆 Machiavelli is often credited with first using the concept of the state to refer to a territorial sovereign government in The Prince, published in 1532. It is not, however, until the time of British thinkers Thomas Hobbes and John Locke that a full account of the marks of sovereignty is produced.

Today, the most influential definition of the modern state draws on Weber's Politics as a Vocation. He supplied the tripartite categories of "traditional," "charismatic," and "rational-legal" ideal types of legitimation of obedience. Marxist scholars assert that the formation of states can be explained primarily in terms of the interests and struggles of social classes, while non-Marxist scholars?often in the tradition of Weber or Emile Durkheim?place greater emphasis on non-class actors. Another question on state formation has been whether it is best understood in terms of the internal dynamics and conflicts in a given country, or in terms of international dynamics such as war, imperialism, or economic domination.

The state in modern political thought

Political theorists such as Thomas Hobbes, John Locke, Jean-Jacques Rousseau, and Robert Nozick pondered issues concerning the ideal and actual roles of the state. The boundaries of the state are continually changing, for example, through privatization, nationalization, and the creation of new regulatory bodies. J端rgen Habermas, in his conception of the public sphere, has defined civil society in terms of its role as a site of extra-institutional engagement with matters of public interest autonomous from the state. Earlier Western philosophers, in contrast, emphasized the supremacy of state over society, such as Thomas Hobbes and G.W.F. Others, such as Louis Althusser, maintain that civil organizations such as church, schools, and even trade unions are part of an 'ideological state apparatus.' In this sense, the state can fund a number of groups within society that, while autonomous in principle, are dependent on state support.

The state in an international system

The state and supranationalism

International relations theorists have traditionally posited the existence of an international system, where states take into account the behavior of other states when making their own calculations. Recently the notion of an 'international community' has been developed to refer to a group of states who have established rules, procedures, and institutions for the conduct of their relations. However, one of the documents often quoted on the matter is the Montevideo Convention from 1933, the first article of which states:

The state as a person of international law should possess the following qualifications: (a) a permanent population; and (d) capacity to enter into relations with the other states.

Contemporary theories of the state

There are three main traditions within political science that shape 'theories of the state': the Marxist, the pluralist, and the institutionalist. Heavily influenced by Gramsci, Nicos Poulantzas, a Greek neo-Marxist theorist argued that capitalist states do not always act on behalf of the ruling class, and when they do, it is not necessarily the case because state officials consciously strive to do so, but because the 'structural' position of the state is configured in such a way to ensure that the long-term interests of capital are always dominant. While Poulantzas' work on 'state autonomy' has served to sharpen and specify a great deal of Marxist literature on the state, his own framework came under criticism for its 'structural functionalism.'

Pluralism

While neo-Marxist theories of the state were relatively influential in continental Europe in the 1960s and 1970s, pluralism, a contending approach, gained greater adherence in the United States. In this sense, they have both come under criticism for their 'society-centered' understanding of the state by scholars who emphasize the autonomy of the state with respect to social forces.

In particular, the "new institutionalism," an approach to politics that holds that behavior is fundamentally molded by the institutions in which it is embedded, asserts that the state is not an 'instrument' or an 'arena' and does not 'function' in the interests of a single class. Scholars working within this approach stress the importance of interposing civil society between the economy and the state to explain variation in state forms.

"New institutionalist" writings on the state, such as the works of Theda Skocpol, suggest that state actors are to an important degree autonomous. Since the state controls the means of coercion, and given the dependence of many groups in civil society on the state for achieving any goals they may espouse, state personnel can to some extent impose their own preferences on civil society.

'New institutionalist' writers, claiming allegiance to Weber, often utilize the distinction between 'strong states' and 'weak states,' claiming that the degree of 'relative autonomy' of the state from pressures in society determines the power of the state?a position that has found favor in the field of international political economy.

References

Ralph Miliband The State in Capitalist Society (1969)
Charles Tilly The Formation of National States in Western Europe
Robert Dahl, Modern Political Analysis
Theda Skocpol, Bringing the State Back In

International law
International relations
Social sciences
Political geography
political science terms

Chronology

Key Dates
1921 Robert Pein opens an insurance office in Columbus, Ohio.
1931 State Automobile Insurance expands beyond Ohio's borders for the first time.
1949 The company's assets exceed $20 million.
1958 State Automobile Insurance completes its first acquisitions.
1971 Assets reach $370 million during the company's 50th anniversary.
1991 State Auto Financial is created to facilitate an initial public offering of stock.
1993 Milbank Insurance Co. is acquired.
1998 Farmers Casualty Co. is acquired.
2001 State Auto Financial completes the largest acquisition in its history, purchasing Meridian Insurance Group.
2003 Gregory Shepard launches a takeover attempt of State Auto Financial.
2004 Takeover specialist Carl Icahn purchases half of Shepard's State Auto Financial stock.

Additional topics

Company HistoryInsurance

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