Why State Auto Shares Slid

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of insurance provider State Auto Financial  (Nasdaq: STFC  ) fell as much as 13% this morning before mostly recovering after it forecasted catastrophic losses of up to $7.5 million because of six events in its third quarter.

So What: State Auto also said that its loss and loss expense reserve programs for earlier quarters would be increased by $19 million to $21 million because of the cancellation of a program within its Risk Evaluation & Design (RED) Program. CEO Bob Restrepo said he was pleased that third-quarter results reflect lower levels of catastrophe loss than last year or the five-year average, but very disappointed in the loss from the RED business as claims exceeded expectations and nearly all the business in that division has been terminated.

Now What: The stock recovered to just a 4% loss, so investors seem to have a recognized that this is a one-time loss, and not a trend that will continue to affect the company. Still, State Auto's earnings have been extremely erratic recently, and revenues are expected to decline this year and next. Investors may want to wait for earnings to show stable growth before they hop on board.

Looking for more info on State Auto Financial? Add it to My Watchlist.

Fool contributor Jeremy Bowman holds no positions in the companies in this article. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.

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