UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.      )

Filed by the Registrantx    Filed by a Party other than the Registrant¨

Check the appropriate box:

STATE AUTO FINANCIAL CORPORATION

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

STATE AUTO FINANCIAL CORPORATION

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

To the Shareholders of

STATE AUTO FINANCIAL CORPORATION:

Notice is hereby given that the Annual Meeting of Shareholders of State Auto Financial Corporation (the “Company” or “STFC”) will be held at the Company’s principal executive offices located at 518 East Broad Street, Columbus, Ohio, on May 2, 2014,8, 2015, at 10:11:00 a.m., local time, for the following purposes:

The close of business on March 7, 2014,13, 2015, has been fixed as the record date for the determination of shareholders entitled to notice of and to vote at the meeting and any adjournment thereof.

In order that your shares may be represented at this meeting and to assure a quorum, please indicate your voting instructions by telephone, via the Internet or by signing and returning the enclosed proxy promptly. Instructions for indicating your voting instructions by telephone or via the Internet are included on the enclosed proxy. A return addressed envelope, which requires no postage, is enclosed if you choose to submit your voting instructions by mail. In the event you are able to attend and wish to vote in person, at your request we will cancel your proxy.

By Order of the Board of Directors

JAMES A. YANO

Secretary

Dated: April 1, 20149, 2015

STATE AUTO FINANCIAL CORPORATION

PROXY STATEMENT SUMMARY

You have received this Proxy Statement because the Board of Directors of STFC is soliciting your proxy to vote your common sharesCommon Shares at the 20142015 Annual Meeting of Shareholders. This summary highlights information contained elsewhere in this Proxy Statement. Defined terms used in this summary have the meanings given to such terms elsewhere in this Proxy Statement. This summary does not contain all of the information that you should consider in voting your common shares,Common Shares, and you should read the entire Proxy Statement carefully before voting. Page references are supplied to help you find more detailed information in this Proxy Statement. The date this Proxy Statement and the related proxy materials are first being sent or given to shareholders and being made available on the internet is approximately April 1, 2014.9, 2015.

20142015 ANNUAL MEETING OF SHAREHOLDERS

Time: May 2, 2014, 10:8, 2015, 11:00 a.m., local time

Place: 518 East Broad Street, Columbus, Ohio 43215

Record Date: You may vote if you were a shareholder of record at the close of business on March 7, 201413, 2015 (page 1).

VOTING MATTERS AND BOARD RECOMMENDATIONS

Our Board of Directors is not aware of any matter that will be presented for a vote at the 20142015 Annual Meeting of Shareholders other than those shown above.

State Automobile Mutual Insurance Company (“State Auto Mutual”) owns approximately 62%62.6% of the outstanding common sharesCommon Shares of STFC. State Auto Mutual has expressed an intention to vote FOR each of the voting matters listed above.

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How to Cast Your Vote (as discussed on the proxy card)

You can vote by any of the following methods:

Director Nominees (pages 3 and 4)

Directors Continuing in Office (pages 4-6)5 and 6)

*Audit = Audit Committee; Comp = Compensation Committee; Indep = Independent Committee;

I&F = Investment and Finance Committee; N&G = Nominating and Governance Committee; Risk = Risk Committee

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INFORMATION ABOUT OUR BOARD AND BOARD COMMITTEES (pages 10 and 11)17-19)

During 2013,2014, seven Board members attended 100% of the meetings of the Board and Board committees on which they served. Our other two Board members attended 89%88% or more of the meetings of the Board and Board committees on which they served.

GOVERNANCE FACTS

*The size of the Board was increased to ten on March 27, 2015 to accommodate the nomination of Mr. LaRocco as a director. If all four nominees are elected directors on May 8, 2015, there will be ten directors on the Board.

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20132014 BUSINESS HIGHLIGHTS

2013 was a year of substantial progress for the Company as the plans and strategies we have implemented to transform certain parts of our business continued to produce improved results. Highlights of our 20132014 results (on a GAAP basis) included:include:

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The portion of the performance-based compensation awarded to our named executive officers (“NEOs”) in 2014 that will ultimately be earned is determined based on the results we and the State Auto Group achieve with respect to certain of these and other GAAP and non-GAAP financial measures. See the “Compensation Discussion and Analysis” section of this Proxy Statement for more information regarding our executive compensation program and the performance-based compensation awarded to and earned by our NEOs in 2014.

PRIMARY COMPONENTS OF OUR 20132014 EXECUTIVE COMPENSATION PROGRAM (page 29)35)

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IMPACT OF STATE AUTO GROUP ON 20132014 COMPENSATION OF NEOs (page 21)27)

Because our NEOs perform services for the Company, State Auto Mutual and other members of the State Auto Group, we generally allocated the compensation expenses in 20132014 for such services 65% to the Company and its subsidiaries and 35% to State Auto Mutual and certain of its subsidiaries and affiliates.

20132014 EXECUTIVE COMPENSATION HIGHLIGHTS (page 20)26)

The Company’s recent financial results are reflected in the actual compensation earned by our NEOs for 2013.

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Based on the approval of the “say-on-pay” vote at our 20132014 Annual Meeting of Shareholders (approximately 99% of the votes cast) and, the significant changes made to our executive compensation program and practices in 2011 and 2012, weCompensation Committee did not make any changes to our executive compensation program as a result of the 20132014 “say-on-pay” vote. See “Compensation Discussion and Analysis—Executive Summary—Modifications to Executive Compensation Program in 2013”Program” on page 2430 of this Proxy Statement for a description of the changes we did make to our executive compensation program and practices in 2013.2014.

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PROXY STATEMENT TABLE OF CONTENTS

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STATE AUTO FINANCIAL CORPORATION

PROXY STATEMENT

GENERAL

This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of State Auto Financial Corporation (the “Company” or “STFC”) to be used at its Annual Meeting of Shareholders to be held May 2, 20148, 2015 (the “Annual Meeting”). Shares represented by properly executed proxies will be voted at the Annual Meeting in accordance with the choices indicated on the proxy. A proxy may be revoked at any time, insofar as it has not been exercised, by delivery to the Company of a subsequently dated proxy or by giving notice of revocation to the Company in writing or in open meeting. A shareholder’s presence at the Annual Meeting does not by itself revoke the proxy.

The mailing address of the principal executive offices of the Company is 518 East Broad Street, Columbus, Ohio 43215. The approximate date on which this Proxy Statement and the form of proxy are first being sent or given to shareholders is April 1, 2014.9, 2015.

This Proxy Statement, the form of proxy, and the Company’s 20132014 Annual Report to Shareholders are available atwww.proxyvote.com.

PROXIES AND VOTING

The close of business on March 7, 201413, 2015 has been fixed as the record date for the determination of shareholders entitled to notice of and to vote at the Annual Meeting and any adjournment thereof. On the record date there were outstanding and entitled to vote 40,846,35041,113,480 of the Company’s common shares, without par value (the “Common Shares”). Each Common Share is entitled to one vote.

A quorum must be present at the Annual Meeting in order for the transaction of business to occur. A quorum is present if a majority of the outstanding Common Shares is present in person or by proxy at the Annual Meeting. Abstentions and broker non-votes will be considered as Common Shares present at the Annual Meeting for purposes of determining the presence of a quorum.

“Broker non-votes” and “broker discretionary voting” refer to the rules governing whether or not banks, brokers and other intermediaries (hereafter referred to collectively as “brokers”) may vote Common Shares held in street name for the benefit of their customers. In general, brokers have discretionary voting authority on behalf of their customers with respect to “routine” matters when they do not receive timely voting instructions from their customers. Brokers do not have discretionary voting authority on behalf of their customers with respect to “non-routine” matters, and a broker non-vote occurs when a broker does not receive voting instructions from its customer on a non-routine matter.

For Proposal One (election of Class IIIII directors), the nominees receiving the highest number of votes will be elected as directors. Shareholders do not have the right to cumulate their votes in the election of directors. Abstentions will not be counted in determining the votes cast for the election of directors and will not have a positive or negative effect on the outcome of the election. Proposal One is considered a non-routine matter under the broker discretionary voting rules, and therefore, brokers may not vote uninstructed Common Shares in the

election of directors. Accordingly, if you hold your Common Shares in street name and you do not provide voting instructions to your broker as to how you want your Common Shares voted in the election of directors, no vote will be cast on your behalf. Therefore, it is important that you provide voting instructions to your broker if you want your vote to count in the election of directors.

For Proposal Two (ratification(approval of the selection of Ernst & Young LLP asan amendment to the Company’s independent registered public accounting firm)1991 Employee Stock Purchase and Dividend Reinvestment Plan (the “Employee Stock Purchase Plan”)), the vote required to approve suchthis Proposal is the favorable vote of a majority of the outstanding Common Shares that are voted on such Proposal. Abstentions willon this Proposal have the same effect as a vote against it. This Proposal is considered a routine matter, which means that if you hold your Common Shares in street name and do not provide, in a timely manner, voting instructions to your broker as to how you want your Common Shares voted on Proposal Two your broker may vote your Common Shares on this Proposal at its discretion.

Proposal Three (vote on compensation to the Company’s named executive officers as described in this Proxy Statement) is advisory only and therefore is not binding on our Board of Directors. However, the Compensation Committee may take into account the outcome of Proposal Three when considering future executive compensation arrangements. Abstentions on Proposal Three have the same effect as not voting or expressing a preference, as the case may be, and will not have a positive or negative effect on the outcome of this Proposal. Proposal Three is considered a non-routine matter, so if you do not instruct your broker as to how you want your Common Shares voted on this Proposal, no vote will be cast on your behalf. Therefore, it is important that you provide voting instructions to your broker if you want your vote to count regarding Proposal Three.Two.

For Proposal Three (ratification of the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm), the vote required to approve such Proposal is the favorable vote of a majority of the outstanding Common Shares that are voted on such Proposal. Abstentions on this Proposal will have the same effect as a vote against it. This Proposal is considered a routine matter, which means that if you hold your Common Shares in street name and do not provide, in a timely manner, voting instructions to your broker as to how you want your Common Shares voted on Proposal Three, your broker may vote your Common Shares on this Proposal at its discretion.

Proposal Four (vote on compensation to the Company’s named executive officers as described in this Proxy Statement) is advisory only and therefore is not binding on our Board of Directors. However, the Compensation Committee may take into account the outcome of Proposal Four when considering future executive compensation arrangements. Abstentions on Proposal Four have the same effect as not voting or expressing a preference, as the case may be, and will not have a positive or negative effect on the outcome of this Proposal. Proposal Four is considered a non-routine matter, so if you do not instruct your broker as to how you want your Common Shares voted on this Proposal, no vote will be cast on your behalf. Therefore, it is important that you provide voting instructions to your broker if you want your vote to count regarding Proposal Four.

All Common Shares represented by properly executed proxies will be voted at the Annual Meeting in accordance with the choices indicated on the proxy. If no choices are indicated on a proxy, the Common Shares represented by that proxy will be voted as follows: (1) for the election of the nominees listed in this Proxy Statement as Class IIIII directors; (2) for the approval of an amendment to the Employee Stock Purchase Plan; (3) for the ratification of the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm for 2014;2015; and (3)(4) for the approval of the compensation of the Company’s named executive officers as disclosed in this Proxy Statement. Any proxy may be revoked at any time prior to its exercise by delivering to the Company a subsequently dated proxy or by giving notice of revocation to the Company in writing or in open meeting. A shareholder’s presence at the Annual Meeting does not by itself revoke the proxy.

STATE AUTOMOBILE MUTUAL INSURANCE COMPANY (“STATE AUTO MUTUAL”), WHICH OWNS APPROXIMATELY 62%62.6% OF THE OUTSTANDING COMMON SHARES, HAS EXPRESSED AN INTENTION TO VOTE FOR THE ELECTION OF THE NOMINEES LISTED IN PROPOSAL ONE OF THIS PROXY STATEMENT AND IN FAVOR OF EACH OF THE OTHER PROPOSALS TWO AND THREE.DESCRIBED IN THIS PROXY STATEMENT.

PROPOSAL ONE: ELECTION OF DIRECTORS

Nominees for Class IIIII Directors

The number of directors currently iswas fixed at nine.nine during 2014, but has been expanded to ten in 2015. Our Board of Directors is divided into three classes, Class I, Class II and Class III, with three directors in each Class.of Class I and II and four directors in Class III. The term of office of directors in one Class expires annually at each annual meeting of shareholders at such time as their successors are elected and qualified. Directors in each Class are elected for three-year terms.

The term of office of the Class IIIII directors expires concurrently with the holding of the Annual Meeting. DavidEileen A. Mallesch, Robert P. Restrepo, Jr., Michael J. D’Antoni, David R. MeuseFiorile and S. Elaine Roberts,Michael E. LaRocco, the threefour persons recommended by the Nominating and Governance Committee of our Board and each of whom is an incumbent Class II director,Directors, have been nominated for re-electionelection as Class IIIII directors at the Annual Meeting. Ms. Mallesch and Mr. Restrepo are incumbent Class III directors. Mr. LaRocco has signed an employment agreement to become our President and Chief Executive Officer effective May 8, 2015, succeeding Mr. Restrepo whose term of office for these positions will end on May 8. Mr. Restrepo will remain a director of our Company and Chairman of our Board until his retirement on December 31, 2015, at which time his term as a director and our Chairman will end. Paul S. Williams, who is currently the other Class III director, previously informed the Nominating and Governance Committee that he would not stand for re-election as a director of the Company at the Annual Meeting, and Mr. Michael J. Fiorile has been nominated as Mr. Williams’ successor. See “Corporate Governance and Board of Directors—Relationship with State Auto Mutual and Changes in Board Structure” for additional information concerning the background of Mr. Fiorile’s nomination as a director.

At the Annual Meeting, it is the intention of the persons named in the accompanying form of proxy, unless a contrary position is indicated on such proxy, to vote the proxy for the election of the threefour nominees named below as Class IIIII directors, each to hold office until the 20172018 annual meeting of shareholders and until a successor is elected and qualified. Each of the nominees has consented to being named in this Proxy Statement and to serve if elected. In the event that any nominee named below is unable to serve (which is not anticipated), the persons named in the proxy may vote it for another nominee of their choice.

Proxies cannot be voted at the Annual Meeting for a greater number of persons than the threefour nominees named in this Proxy Statement.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE ELECTION OF EACH OF THE THREEFOUR NOMINEES NAMED BELOW AS CLASS IIIII DIRECTORS.

Backgrounds of Class IIIII Director Nominees (Terms expiring in 2017)2018)

DavidMichael J. D’AntoniFiorile

DavidMichael J. D’Antoni, 69,Fiorile, 60, has served as Chief Executive Officer of The Dispatch Printing Company, a privately owned, regional print and broadcast media company, since January 2008 and as its President since January 2005. He also has served as Vice Chairman and CEO of the company’s subsidiary, Dispatch Broadcast Group, which includes television and radio stations and cable operations, since 1994. Mr. Fiorile has been a director of State Auto Mutual since 2003.

Mr. Fiorile has been nominated for election as a director because of his extensive experience as a senior executive of a privately held corporation, in particular his management experience with the operation of regulated entities. Mr. Fiorile also brings his extensive experience and familiarity with the State Auto Group (as defined on Page 76), having served as a member of the State Auto Mutual Board of Directors since November 2003 and on the Board’s Nominating and Governance Committee, 2004 to present; Independent Committee, 2004 to present; Investment and Finance Committee, 2004 – 2007; Compensation Committee 2013 to present; and Risk Committee, 2014 to present.

Michael E. LaRocco

Michael E. LaRocco, 58, will become our President and Chief Executive Officer effective May 8, 2015. Mr. LaRocco has been with Business Insurance Direct, LLC (“BID”), an online seller of general liability and property insurance to small businesses, since December 2011. From January 2013 to July 2014, he was Chief Executive Officer of AssureStart Insurance Agency LLC (“AssureStart”), an online seller of general liability and property insurance to small businesses. BID had owned a minority interest in AssureStart until selling its interest to the majority owner of AssureStart in December 2014. Mr. LaRocco served as President and Chief Executive Officer of Fireman’s Fund Insurance Company, a property and casualty insurance company, from March 2008 to July 2011. Previously, he was an executive for Safeco Insurance Companies, which are property and casualty insurance companies, from July 2001 to July 2006.

Mr. LaRocco has been nominated for election as a director of the Company because of his extensive and valuable experience gained over his career in the property and casualty insurance industry, including underwriting, sales, marketing, general management and many years as a senior executive of property and casualty insurance companies. In addition, he brings valuable experience in strategic planning, leadership development, product development and on-line marketing.

Eileen A. Mallesch

Eileen A. Mallesch, 59, has been a director since 1995. Mr. D’AntoniAugust 2010. Ms. Mallesch served as Senior Vice President and Group OperatingChief Financial Officer for Ashland, Inc., a chemical, energyof Nationwide Property and transportation construction company,Casualty Insurance Company from March 1999 until his retirement in September 2004. He alsoNovember 2005 to December 2009. She served as President of APAC, Inc., a subsidiary of Ashland, Inc., from July 2003 until January 2004, and Senior Vice President and Chief Financial Officer of Ashland, Inc.Genworth Life Insurance Company from April 2003 to November 2005. Prior to that, she was Vice President and President, Ashland Chemical, a divisionChief Financial Officer of Ashland, Inc.,General Electric Financial Employer Services Group from July 1988 until March 1999. Mr. D’Antoni2000 to 2003. Ms. Mallesch is also a director of OMNOVA SolutionsBob Evans Farms, Inc., a publicly traded producerrestaurant and food products company.

Ms. Mallesch has been nominated for re-election as a director because of decorativeher extensive knowledge and functional surfaces, coatingsexperience in the areas of auditing, finance, enterprise risk management, taxation and specialty chemicals,mergers and Compass Minerals International, Inc.acquisitions, in particular in the insurance industry. She also brings gender diversity to the Board.

Robert P. Restrepo, Jr.

Robert P. Restrepo, Jr., 64, has been a publicly traded producerdirector since 2006, when he was appointed to the Board in connection with being retained as President and distributorChief Executive Officer of inorganic minerals.the Company. Mr. Restrepo has served as the Chairman of the Board, President and Chief Executive Officer of the Company, State Auto Property & Casualty Insurance Company (“State Auto P&C”) and Milbank Insurance Company (“Milbank”), each a wholly owned subsidiary of the Company, and of State Auto Mutual, since 2006.

Mr. D’AntoniRestrepo has been nominated for re-election as a director because of his extensive and valuable experience in operations, marketing, sales, and general management of a property and casualty insurance company, including his unique knowledge and understanding of the Company’s operations as a senior executive of a publicly traded company, his experience as a director of publicly traded companies, and his knowledge with general management, acquisitions and divestitures. In addition, Mr. D’Antoni brings significant expertise in regulatory and environmental, health and safety matters to the Board.

David R. Meuse

David R. Meuse, 68, has been a director since 2006. Mr. Meuse has served as Principal of Stonehenge Partners Corp., a privately held provider of financial and advisory resources, since September 1999. Prior to that time, Mr. Meuse held executive positions at various investment banking firms, including Banc One Capital Holdings Corporation and Meuse, Rinker, Chapman, Endres & Brooks. Mr. Meuse also serves on the board of directors of several privately held companies and non-profit organizations.

Mr. Meuse has been nominated for re-election as a director becauseresult of his more than nine years in serving as the Company’s President and Chief Executive Officer. He also has valuable experience in acquisitions, strategic planning and leadership development.

In accordance with his employment agreement, Mr. Restrepo will retire as a senior executive, his experiencean employee of the Company no later than December 31, 2015. He will continue to serve as a director of publicly traded companies, and his knowledge with acquisitions and divestitures. In addition, Mr. Meuse brings significant expertise in investments, investment management, and financial market matters to the Board.

S. Elaine Roberts

S. Elaine Roberts, 61, has been a director since 2002. Ms. Roberts has served asour President and Chief Executive Officer of the Columbus Regional Airport Authority, a public port authority which oversees the operations of Port Columbus International, Rickenbacker International and Bolton Field airports in Ohio, since January 2003. She served as Executive Director of the Columbus Airport Authority from December 2000 until accepting her current position.

Ms. Roberts has been nominated for re-election to serveMay 8, 2015, when he will be succeeded by Mr. LaRocco. Mr. Restrepo will remain as a director because of her experienceour Company and Chairman of our Board until his retirement on December 31, 2015, at which time his term as a senior executive, in particular her senior management experience with the operationdirector and our Chairman will end. See “Corporate Governance and Board of a regulated entity. Ms. Roberts also has a legal background as an attorney,Directors—Board and she brings gender diversity to the Board.Executive Leadership: CEO Succession” for additional information concerning this succession process.

Backgrounds of Continuing Class I Directors (Terms expiring in 2016)

Robert E. Baker

Robert E. Baker, 67,68, has been a director since 2007. Mr. Baker has served as Executive Vice President of DHR International, Inc., an executive search firm, since June 2010. Mr. Baker was President of Puroast Coffee Inc., a maker of specialty coffee products, from 2004 until accepting his current position. He served as Vice President of Corporate Marketing for ConAgra Foods, Inc., one of North America’s largest packaged food companies, from 1999 to 2004. Mr. Baker was a director of CoolBrands International Inc., a publicly traded Canadian corporation focused on the marketing and selling of ice cream and frozen snack products, from February 2006 to November 2007. He was also a director of Natural Golf Corporation, a publicly traded company offering golf instruction and equipment, from 2004 to 2006. Mr. Baker was elected as a director of State Auto Mutual in March 2015. See “Corporate Governance and Board of Directors—Relationship with State Auto Mutual and Changes in Board Structure” for additional information concerning the background of Mr. Baker’s election as a director of State Auto Mutual.

Mr. Baker was last nominated in 2013 to serve as a director because of his experience as a senior executive of both publicly traded and privately held companies and his former experience as a director of publicly traded companies. He also brings racial and geographic diversity to the Board. In addition, Mr. Baker brings significant expertise in marketing, strategic planning and branding to the Board.

Thomas E. Markert

Thomas E. Markert, 56,57, has been a director since 2007. Mr. Markert has served as CEOExecutive Vice President of Research Now Group, Inc., a global online sampling and online data collection company, since August 2014. Mr. Markert was the Chief Executive Officer of Digital Tailwind LLC, a digital marketing agency, sincefrom March 2012.2012 until July 2014. Mr. Markert was an officer of the Business Solutions Division of Office Depot, Inc., a global supplier of office products and services, from May 2008 until accepting his current position.March 2012. He served as the Chief Executive Officer of Ipsos Loyalty Worldwide, a division of Ipsos, a leading global provider of survey-based research, from May 2007 to May 2008. He also served as Global Chief Marketing and Client Service Officer of ACNielsen, a leading global provider of marketing research and information services, from January 2004 until May 2007. For more than five years prior thereto, Mr. Markert held various executive positions within ACNielsen.

Mr. Markert was last nominated in 2013 to serve as a director because of his experience as a senior executive of both publicly traded and privately held companies. He also brings geographic diversity to the Board. In addition, Mr. Markert brings significant expertise in marketing, branding and market research to the Board.

Alexander B. Trevor

Alexander B. Trevor, 68,69, has been a director since 2006. Mr. Trevor has served as President of Nuvocom Incorporated, a provider of patent litigation support services, since October 1996. He was a director of Applied Innovation Inc., a publicly traded provider of network management solutions for the communications industry, from 1997 to May 2007.

Mr. Trevor was last nominated in 2013 to serve as a director because of his experience as a senior executive and his former experience as a director of a publicly traded company. He also brings geographic diversity to the Board. In addition, Mr. Trevor brings expertise in information technology and computer systems to the Board.

Backgrounds of Continuing Class IIIII Directors (Terms expiring in 2015)2017)

Eileen A. MalleschDavid J. D’Antoni

Eileen A. Mallesch, 58,David J. D’Antoni, 70, has been a director since August 2010. Ms. Mallesch1995. Mr. D’Antoni served as Senior Vice President and Chief FinancialGroup Operating Officer of Nationwide Propertyfor Ashland, Inc., a chemical, energy and Casualty Insurance Companytransportation construction company, from November 2005 to December 2009. She

March 1999 until his retirement in September 2004. He also served as Senior Vice President and Chief Financial Officer of Genworth Life Insurance CompanyAPAC, Inc., a subsidiary of Ashland, Inc., from AprilJuly 2003 to November 2005. Prior to that, she was Vice President and Chief Financial Officer of General Electric Financial Employer Services Group from 2000 to 2003. Ms. Malleschuntil January 2004. Mr. D’Antoni is also a director of Bob Evans Farms,OMNOVA Solutions Inc., a publicly traded restaurantproducer of decorative and food products company.

Ms. Mallesch was last nominated in 2012 to serve as a director because of her extensive knowledgefunctional surfaces, coatings and experience in the areas of auditing, finance, enterprise risk management, taxation and mergers and acquisitions, in particular in the insurance industry. She also brings gender diversity to the Board.

Robert P. Restrepo, Jr.

Robert P. Restrepo, Jr., 63, has been a director since 2006, when he was appointed to the Board in connection with being retained as President and Chief Executive Officer of the Company. Mr. Restrepo has served as the Chairman of the Board, President and Chief Executive Officer of the Company, State Auto Property & Casualty Insurance Company (“State Auto P&C”) and Milbank Insurance Company (“Milbank”), each a wholly owned subsidiary of the Company, and of State Auto Mutual, since 2006.

Mr. Restrepo was last nominated in 2012 to serve as a director because of his extensive and valuable experience in operations, marketing, sales, and general management of a property and casualty insurance company, including his unique knowledge and understanding of the Company’s operations as a result of his more than eight years in serving as the Company’s President and Chief Executive Officer. He also has valuable experience in acquisitions, strategic planning and leadership development.

Paul S. Williams

Paul S. Williams, 54, has been a director since 2003. Mr. Williams has served as a Managing Partner with Major, Lindsey & Africa, LLC, an attorney search consulting firm, since May 2005. He was an officer of Cardinal Health, Inc., a global provider of products and services to healthcare providers and manufacturers, for more than five years prior to that time, last serving as that company’s Executive Vice President, Chief Legal Officer and Secretary. Mr. Williams is also a director of Bob Evans Farms, Inc., a publicly traded restaurant and food products company,specialty chemicals, and Compass Minerals International, Inc., a publicly traded producer and distributor of inorganic minerals.

Mr. WilliamsD’Antoni was last nominated in 20122014 to serve as a director because of his experience as a lawyer and as the General Counselsenior executive of a publicly traded company, his experience as a director of publicly traded companies, and his knowledge inwith general management, acquisitions and divestitures,divestitures. In addition, Mr. D’Antoni brings significant expertise in regulatory and environmental, health and safety matters to the Board.

David R. Meuse

David R. Meuse, 69, has been a director since 2006. Mr. Meuse has served as Principal of Stonehenge Partners Corp., a privately held provider of financial and advisory resources, since September 1999. Prior to that time, Mr. Meuse held executive positions at various investment banking firms, including Banc One Capital Holdings Corporation and Meuse, Rinker, Chapman, Endres & Brooks. Mr. Meuse was a director of Diamond Hill Investment Group, Inc., a publicly traded company providing investment advisory and fund administration services, from August 2000 to April 2011. Mr. Meuse also serves on the board of directors of several privately held companies and non-profit organizations.

Mr. Meuse was last nominated in 2014 to serve as a director because of his experience as a senior executive, his former experience as a director of publicly traded companies, and his knowledge with acquisitions and divestitures. In addition, Mr. Meuse brings significant expertise in investments, investment management, and financial market matters to the Board.

S. Elaine Roberts

S. Elaine Roberts, 62, has been a director since 2002. Ms. Roberts has served as President and Chief Executive Officer of the Columbus Regional Airport Authority, a public port authority which oversees the operations of Port Columbus International, Rickenbacker International and Bolton Field airports in Ohio, since January 2003.

Ms. Roberts was last nominated in 2014 to serve as a director because of her experience as a senior executive, in particular her senior management experience with the operation of a regulated entity. Ms. Roberts also has a legal background as an attorney, and regulatory matters. Mr. Williams alsoshe brings racialgender diversity to the Board. In addition, Mr. Williams brings

significant expertise in human resources, leadership development and executive compensation policy matters to our Board. He is a well-respected leader in the area of diversity, frequently speaking on diversity-related issues.

Majority Voting Policy for Incumbent Directors

Our Board of Directors has adopted a majority voting policy for incumbent directors (the “Majority Voting Policy”) which is reflected in our Corporate Governance Guidelines. The Majority Voting Policy provides that if a nominee for director who is an incumbent director does not receive the vote of at least the majority of the votes cast at any meeting for the election of directors at which a quorum is present, and no successor has been elected at such meeting, then that incumbent director will promptly tender his or her resignation to the Board of Directors. For purposes of the Majority Voting Policy, a majority of votes cast means that the number of Common Shares voted “for” a director’s election exceeds 50% of the number of votes cast with respect to that director’s election or, in the case where the number of nominees exceeds the number of directors to be elected, cast with respect to election of directors generally. Votes cast (i) include votes to withhold authority in each case, and (ii) exclude abstentions with respect to that director’s election or, in the case where the number of nominees exceeds the number of directors to be elected, abstentions with respect to election of directors generally.

The Nominating and Governance Committee will make a recommendation to our Board of Directors as to whether to accept or reject the tendered resignation, or whether other action should be taken. Our Board of Directors will act on the tendered resignation, taking into account the Nominating and Governance Committee’s recommendation, and publicly disclose (by a press release, a filing with the Securities and Exchange

Commission or other broadly disseminated means of communication) its decision regarding the tendered resignation and the rationale behind the decision within 90 days from the date of the certification of the election results. The Nominating and Governance Committee, in making its recommendation, and our Board of Directors, in making its decision, may each consider any factors or other information that the Nominating and Governance Committee or Board, as the case may be, considers appropriate and relevant. The director who tenders his or her resignation will not participate in the recommendation of the Nominating and Governance Committee or the decision of our Board of Directors with respect to his or her resignation. If such incumbent director’s resignation is not accepted by our Board of Directors, such director will continue to serve until the next annual meeting and until his or her successor is duly elected, or his or her earlier resignation or removal. If a director’s resignation is accepted by our Board of Directors, then our Board of Directors, in its sole discretion, may fill any resulting vacancy pursuant to the provisions of our Code of Regulations.

Beneficial Ownership Information for Directors and Named Executive Officers

The following table sets forth information with respect to Common Shares beneficially owned by directors, director nominees and our “Named Executive Officers” or “NEOs” (those persons listed in the Summary Compensation Table on page 4653 of this Proxy Statement) as of March 7, 2014:13, 2015:

Ms. Buss – Buss—1,857 Common Shares; Mr. Fitch – Fitch—1,783 Common Shares; Mr. Yano – Yano—1,783 Common Shares; and Officers as a group – group—24,570 Common Shares. The Common Shares are subject to a risk of forfeiture if, prior to March 6, 2017, the award recipient’s employment is terminated or he or she violates any provision of the restricted stock agreement applicable to these Common Shares. However, these Common Shares will not be forfeited, and will automatically vest, if, prior to March 6, 2017, the award recipient’s employment is terminated in connection with a change inof control of the Company. These Common Shares are also subject to restrictions on transfer until March 6, 2017.

(5)

Includes restricted stock awards made to the Named Executive Officers and other officers on March 5, 2015. On that date, the Compensation Committee made the following restricted stock awards to the Named Executive Officers: Mr. Restrepo—7,924 Common Shares; Mr. English—2,471 Common Shares; Ms. Buss—2,192 Common Shares; Mr. Fitch—1,597 Common Shares; Mr. Yano—1,602 Common Shares; and Officers as a group—24,122 Common Shares. The Common Shares are subject to a risk of forfeiture if, prior to March 5, 2018, the award recipient’s employment is terminated or he or she violates any provision of the restricted stock agreement applicable to these Common Shares. However, these Common Shares will not be forfeited, and will automatically vest, if, prior to March 5, 2018, the award recipient’s employment is terminated in connection with a change of control of the Company. These Common Shares are also subject to restrictions on transfer until March 5, 2018.

(6)	Does not include RSUs.

PROPOSAL TWO: APPROVAL OF AMENDMENT TO EMPLOYEE STOCK PURCHASE PLAN

Proposal

At the Annual Meeting, shareholders will be asked to consider and vote upon a proposal to approve an amendment to the State Auto Financial Corporation 1991 Employee Stock Purchase and Dividend Reinvestment Plan, or “Employee Stock Purchase Plan,” to increase by 250,000 the number of the Company’s Common Shares reserved for issuance under the Employee Stock Purchase Plan. The Board of Directors approved the amendment on March 6, 2015. At the Annual Meeting, unless otherwise indicated, proxies will be voted to approve the amendment to the Employee Stock Purchase Plan.

Shares Subject to the Plan

The total number of Common Shares made available for sale under the Employee Stock Purchase Plan was 3,400,000. Of that number, 166,861 remain available for sale as of March 13, 2015. Under the proposed amendment, an additional 250,000 Common Shares, without par value, would be available for sale under the Employee Stock Purchase Plan, which Common Shares may be authorized but unissued shares or issued shares reacquired by the Company and held as treasury shares.

Description of the Employee Stock Purchase Plan

The following discussion describes the important aspects of the Employee Stock Purchase Plan. This discussion is intended to be a summary of the material provisions of the Employee Stock Purchase Plan. Because it is a summary, some details that may be important to you are not included. For this reason, the entire Employee Stock Purchase Plan, including the proposed amendment, is attached as Exhibit A to this Proxy Statement. You are encouraged to read the Employee Stock Purchase Plan, including the proposed amendment, in its entirety.

Purpose

The purpose of the Employee Stock Purchase Plan is to provide each employee of the Company or its parent or subsidiaries with an opportunity to acquire or increase a proprietary interest in the Company by enabling such employees to purchase Common Shares through payroll deductions. Because the employee stock purchase feature of the Employee Stock Purchase Plan is intended to qualify as an employee stock purchase plan described in Section 423 of the Internal Revenue Code of 1986, as amended (the “Code”), eligible employees may purchase Common Shares at a discount to their fair market value, as described below.

Eligibility

All employees of the Company or its parent or subsidiary corporations are eligible to participate in the Employee Stock Purchase Plan. As of March 13, 2015, there were 579 employees participating in the Employee Stock Purchase Plan, which represents approximately 25% of the Company’s work force.

In addition to the employees described in the preceding paragraph, eligible employees also include an individual who is employed by an entity acquired by the Company or its parent or a subsidiary corporation in anticipation of and conditioned on, becoming an employee of the Company or its parent or a subsidiary corporation as of the commencement date of an applicable subscription period. Such designation as an eligible employee is solely for the purpose of the individual’s eligibility to enroll in the Employee Stock Purchase Plan during an applicable enrollment period prior to the applicable subscription period. In the event an individual is not an employee of the Company or its parent or a subsidiary corporation as of the commencement of a subscription period, the individual shall not be an eligible employee or become a participant in the Employee Stock Purchase Plan.

Stock Purchases; Purchase Price; Reinvestment of Cash Dividends

Employees who desire to participate in the Employee Stock Purchase Plan may do so by making an election to participate during one of two annual enrollment periods. Currently, the enrollment periods are June 1 through June 14 and December 1 through December 14.

Participating employees may elect to contribute, by payroll deduction, from one percent to six percent of their base pay toward the purchase of Common Shares. Amounts accumulated in the plan account of each participating employee through the last pay period during a subscription period will be credited to the purchase of Common Shares from the Company. Unless withdrawn by the participant, Common Shares purchased under the plan will be held for the participant by the Employee Stock Purchase Plan’s agent, currently Fidelity National Bank. For subscription periods on or after January 1, 2010, the Employee Stock Purchase Plan requires an active employee participant to hold Common Shares in the participant’s account for at least one year from the date of purchase or 18 months from the last trading day preceding the subscription period.

The purchase price for Common Shares purchased under the plan is the lesser of 85% of the fair market value of the Common Shares on the last trading day before the first day of each subscription period or on the last trading day before the last day of such subscription period.

Currently, the two annual subscription periods are January 1 through June 30 and July 1 through December 31.

At the election of the participant, any dividends received with respect to Common Shares held in the participant’s account will either be automatically reinvested in the participant’s account or paid to the participant in a quarterly cash distribution.

Federal Income Tax Information

The employee stock purchase feature of the Employee Stock Purchase Plan is intended to qualify as an employee stock purchase plan described in Section 423 of the Code. As such, participants will recognize no income for federal income tax purposes upon the grant or exercise of the right to purchase Common Shares. The compensation deducted to purchase Common Shares under the Employee Stock Purchase Plan during a subscription period, however, will be includable in the participant’s income.

If a participant disposes of Common Shares purchased under the employee stock purchase feature of the Employee Stock Purchase Plan within two years after the last trading day preceding the subscription period in which such Common Shares were purchased (the “Grant Date”), the participant must include in ordinary income, as compensation, an amount equal to the excess of the fair market value of the Common Shares on the purchase date over the purchase price paid for such Shares under the Employee Stock Purchase Plan. The employer company will be allowed a deduction in an amount equal to the amount included in the participant’s income as compensation. If the participant does not dispose of the Common Shares purchased under the employee stock purchase feature of the Employee Stock Purchase Plan until after the expiration of the two-year holding period described above or if the participant dies while holding the Common Shares acquired under the employee stock purchase feature of the Employee Stock Purchase Plan, the participant must include in income, as compensation, in the taxable year in which disposition or death occurs, an amount equal to the lesser of (i) the excess of the fair market value of the Common Shares at the time of their disposition or death over the purchase price paid for the Common Shares under the plan, or (ii) 15% of the fair market value of the Common Shares on the Grant Date. The basis of the participant in the Common Shares purchased under the employee stock purchase feature of the Employee Stock Purchase Plan will equal the amount paid for the Common Shares plus the amount, if any, included in the participant’s income as compensation. Any compensation resulting from the disposition of the Common Shares will be includable in the income of the participant in the participant’s taxable year in which the disposition of the Common Shares occurs. The participant’s holding period for the Common Shares purchased under the employee stock purchase feature of the Employee Stock Purchase Plan will commence on the Grant

Date. Any gain in excess of the basis will be treated as long-term capital gain if the participant’s holding period for the Common Shares is more than one year.

Participants must include in ordinary income any dividends received on the Common Shares held by the agent under the Employee Stock Purchase Plan, regardless of whether such dividends are reinvested in the participant’s account or paid to the participant in a cash distribution. The participant’s basis in the Common Shares purchased with such dividends will equal the amount paid for such Common Shares and the participant’s holding period will commence on the day such Common Shares are purchased.

2014 Information Pertaining to Named Executive Officers and Other Groups

The following table sets forth, with respect to each of the persons named in the Summary Compensation Table and certain groups of employees, certain information about Common Shares purchased under the Employee Stock Purchase Plan during 2014:

Reasons for Shareholder Approval

The Company’s shareholders are being asked to approve the amendment to the Employee Stock Purchase Plan because shareholder approval is required to make additional Common Shares available for sale under the terms of the Employee Stock Purchase Plan.

The favorable vote of a majority of the outstanding Common Shares voted on such Proposal is required to approve the amendment to the Employee Stock Purchase Plan. The effect of an abstention is the same as a vote against this proposal. Proposal Two is considered a non-routine matter, so if you do not instruct your broker as to how you want your Common Shares voted on this Proposal, no vote will be cast on your behalf.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” APPROVAL OF THE AMENDMENT TO THE EMPLOYEE STOCK PURCHASE PLAN.

PROPOSAL THREE: RATIFICATION OF SELECTION OF

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee of the Company’s Board of Directors has selected Ernst & Young LLP as the Company’s independent registered public accounting firm for 2014.2015. Although not required, the Board of Directors is submitting the selection of Ernst & Young LLP to the Company’s shareholders for ratification. Ernst & Young LLP has served as the Company’s independent registered public accounting firm since 1994. The Audit Committee and the Board of Directors believe that the appointment of Ernst & Young LLP for 20142015 is appropriate because of the firm’s reputation, qualifications and experience.

The favorable vote of a majority of the outstanding Common Shares that are voted on this Proposal at the Annual Meeting is required to approve the ratification of the selection of Ernst & Young LLP.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2014.2015.

The Audit Committee will reconsider the appointment of Ernst & Young LLP if its selection is not ratified by the Company’s shareholders. Even if the selection of Ernst & Young LLP is ratified by shareholders, the Audit Committee, in its discretion, could decide to terminate the engagement of Ernst & Young LLP and to engage another independent registered public accounting firm if the Audit Committee determines such action to be necessary or desirable.

PROPOSAL THREE:FOUR: ADVISORY VOTE ON COMPENSATION OF

NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THIS PROXY STATEMENT

We are asking shareholders to approve, on a non-binding and advisory basis, the compensation of the Company’s named executive officers as disclosed in this Proxy Statement.

The Board of Directors and the Compensation Committee believe that the policies and practices articulated in the “Compensation Discussion and Analysis” are effective in achieving the objectives of our executive compensation program. The Board of Directors urges you to read the “Compensation Discussion and Analysis,” which describes in more detail how our executive compensation policies and practices operate and are designed to achieve the objectives of our executive compensation programs, as well as the tables, notes and narrative disclosure relating to the compensation of the named executive officers, set forth on pages 2026 through 6370 of this Proxy Statement, which provide detailed information on the compensation of our named executive officers.

We are asking shareholders to approve the following advisory resolution at the Annual Meeting:

RESOLVED, that the shareholders of the Company approve, on an advisory basis, the compensation of the Company’s named executive officers as disclosed in the Proxy Statement for the Company’s 20142015 Annual Meeting of Shareholders under the “Compensation Discussion and Analysis” section and the tables, notes and narrative disclosure relating to the compensation of the named executive officers of the Company.

This advisory vote on executive compensation is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the policies and practices described in this Proxy Statement. This advisory vote on executive compensation is advisory and, therefore, is not binding on the Company, the Board of Directors or the Compensation Committee. However, the Board of Directors and the Compensation Committee will review and consider the voting results when making future decisions regarding our executive compensation program.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” APPROVAL OF THE COMPENSATION OF THE NAMED EXECUTIVE OFFICERS.

CORPORATE GOVERNANCE AND BOARD OF DIRECTORS AND BOARD COMMITTEES

Relationship with State Auto Mutual and Changes in Board Structure

Our parent is State Auto Mutual, a mutual insurance company organized in 1921. State Auto Mutual currently owns approximately 62.6% of the outstanding Common Shares. In 1990, State Auto Mutual engaged in a corporate restructuring which, among other things, resulted in the formation of STFC as a wholly owned subsidiary of State Auto Mutual. In 1991, State Auto Mutual sold approximately 30% of its ownership interest in STFC in a public stock offering. While State Auto Mutual’s ownership interest in STFC has declined since STFC’s initial public offering, the State Auto Mutual Board has made public its determination that it is in the best interest of State Auto Mutual to maintain a 60% or greater ownership interest in STFC.

We qualify as a “controlled company” under the Nasdaq listing rules because State Auto Mutual owns more than a majority of the voting power for the election of our directors. A controlled company is exempt from a number of Nasdaq corporate governance requirements. Notwithstanding this qualification, our corporate governance operates in a manner consistent with that of a non-controlled company. For example, a majority of the members of our Board are independent directors as determined under the Nasdaq listing rules. See “—Director Independence.” In addition, the members of both our Compensation and Nominating and Governance Committees are composed entirely of independent directors as determined under the Nasdaq listing rules. See “—Board Meetings and Board Committee Meetings.”

We and our subsidiaries operate and manage our businesses in conjunction with State Auto Mutual and its subsidiaries and affiliates under various management and cost sharing agreements under the leadership and direction of the same senior management team. In addition, our insurance subsidiaries participate in a pooling arrangement with State Auto Mutual and certain of its insurance subsidiaries and affiliates. This pooling arrangement covers all of the property and casualty insurance written by our insurance subsidiaries. See “Related Person Transactions—Transactions Involving State Auto Mutual” for additional information concerning these intercompany agreements and arrangements.

In 2014, the Nominating and Governance Committee of our Board and the Nominating and Governance Committee of the State Auto Mutual Board (collectively, the “N&G Committees”) began a process to consider a potential restructuring of the STFC and State Auto Mutual Boards (collectively, the “Boards”). In broad terms, the N&G Committees considered whether or not it was in the best interest of their respective constituencies to create more overlapping, common directors on the STFC and State Auto Mutual Boards and their committees, which would result in board and committee structures that might be more similar to what they looked like when STFC was initially formed and went public. In addition, the N&G Committees considered the size of each board and the total number of directors comprising both boards. The N&G Committees also considered the current skill sets of directors and whether such skill sets would remain appropriate after anticipating the retirement of certain directors. The N&G Committees identified various reasons in support of their belief that a restructuring would be in the best interest of their respective constituencies, included the following—continuing to improve the communications and engagement between boards and committees, improving knowledge transfer and sharing, cost savings through eliminated positions, continuing to improve communications and efficiencies between directors and management, and improving skill sets and expertise.

As a result of this process, each of the N&G Committees recommended to its respective Board, and each Board approved, a structure in which each board would have two additional common directors, i.e., two directors (other than our President and Chief Executive Officer) that serve on both the STFC and State Auto Mutual Boards. In that regard, at the State Auto Mutual 2015 annual meeting of members, Robert E. Baker, currently a director of STFC, was elected as a director of State Auto Mutual. Likewise, Michael J. Fiorile, currently a director of State Auto Mutual, has been nominated for election as a Class III director at the Annual Meeting.

Director Independence

The Nominating and Governance Committee has affirmatively determined that seven of our eight incumbent directors, namely Robert E. Baker, David J. D’Antoni, Eileen A. Mallesch, Thomas E. Markert, David R. Meuse, S. Elaine Roberts and Alexander B. Trevor, and director nominee Michael J. Fiorile, are “independent” as determined by the Nasdaq listing rules. The Nominating and Governance Committee made this determination based upon its review of information included in director questionnaires provided by each of the incumbent directors and a report by our General Counsel. The information reviewed by the Nominating and Governance Committee included information on the relationships between Mr. Meuse and Stonehenge Financial Holdings and RED Capital Group, two of his affiliates. From time to time we make investments in debt and equity funds sponsored by affiliates of these two companies and receive securities broker-dealer services from an affiliate of RED Capital Group. The Nominating and Governance Committee of our Board affirmatively determined that Mr. Meuse is independent as determined under the Nasdaq listing rules because our investments in the funds sponsored by, and the fees paid to, these two companies and their affiliates are not material to us or to them and Mr. Meuse’s relationships with these companies do not interfere with his independent judgment in carrying out his responsibilities as a director. The fees paid to either Stonehenge Financial Holdings and RED Capital Group in 2014 did not exceed $200,000. The information reviewed by the Nominating and Governance Committee also included information on the relationships of Mr. Baker and Mr. Fiorile as directors of State Auto Mutual. The Nominating and Governance Committee of our Board affirmatively determined that Mr. Baker and Mr. Fiorile are independent as determined under the Nasdaq listing rules.

Our Corporate Governance Guidelines expressly provide that five of the six standing committees are to be comprised solely of independent directors. Our Board’s Audit, Compensation, standing Independent, Nominating and Governance, and Risk Committees meet this standard. Our Board of Directors has concluded that the Investment and Finance Committee does not need to be comprised solely of independent directors. Robert P. Restrepo, Jr. is and will remain our employee until his retirement and Michael E. LaRocco will be our employee, and thus they do not qualify as independent directors as determined under the Nasdaq listing rules. Mr. Restrepo is a member of the Investment and Finance Committee, and it is anticipated that Mr.  LaRocco (if elected) will be appointed to the Investment and Finance Committee after the Annual Meeting.

Board and Executive Leadership: CEO Succession

We are managed under the direction of our Board in the interest of all shareholders. Our Board delegates its authority to our senior executive team to manage the day-to-day operations and ongoing affairs of our business. Our Board requires that our senior executive team review major initiatives and actions with our Board prior to implementation.

As discussed elsewhere in this Proxy Statement, we and our subsidiaries operate and manage our businesses in conjunction with State Auto Mutual and its subsidiaries and affiliates under various management and cost sharing agreements under the leadership and direction of the same senior management team, and our insurance subsidiaries participate in a pooling arrangement with State Auto Mutual and certain of its insurance subsidiaries and affiliates which covers all of the property and casualty insurance written by our insurance subsidiaries. Because of this corporate structure, our Company and State Auto Mutual have always had a leadership structure whereby the same person serves as both chairman and chief executive officer of both companies. As such, our current chairman and chief executive officer, Mr. Restrepo, also currently serves in these same positions with State Auto Mutual.

In accordance with his employment agreement, Mr. Restrepo will retire as an employee of the Company no later than December 31, 2015. Mr. Restrepo will be succeeded by Mr. LaRocco as the Company’s President and Chief Executive Officer effective May 8, 2015, with Mr. Restrepo continuing as a director and Chairman of the Company’s Board of Directors until his retirement.

Both our Board and the State Auto Mutual Board formed their own executive search committees that worked together to identify and hire Mr. LaRocco as Mr. Restrepo’s successor as chief executive officer of both

our Company and State Auto Mutual. Members of our Board’s executive search committee were Mr. Baker, Ms. Mallesch and Mr. Williams. Mr. Fiorile was a member of the State Auto Mutual Board’s executive search committee.

Mr. LaRocco has entered into an employment agreement with the Company and State Auto Mutual commencing on April 27, 2015 and ending on December 31, 2018, unless terminated earlier due to Mr. LaRocco’s disability, death, voluntary termination of employment, or involuntary termination of employment by the Company for cause or without cause. Under the terms of the agreement, Mr. LaRocco will perform the duties and offices of President and Chief Executive Officer of the Company, State Auto Mutual and their subsidiaries and affiliates effective May 8, 2015. Beginning on January 1, 2019 and each anniversary of that date, the term of Mr. LaRocco’s employment agreement may be extended for an additional one-year period upon the mutual written consent of Mr. LaRocco, the Company and State Auto Mutual, not to exceed the end of the calendar year in which Mr. LaRocco attains age 65. Mr. LaRocco’s base salary will be $850,000, which amount may be increased by the Company’s Compensation Committee. He will also participate in the Company’s Leadership Bonus Plan (“LBP”), Long-Term Incentive Compensation Plan (“LTIP”), the Company’s stock purchase and retirement plans available to all employees, and will receive other compensation including relocation expenses. Mr. LaRocco’s employment agreement is more fully discussed in the Form 8-K filed by the Company with the Securities and Exchange Commission on April 2, 2015.

Once Mr. LaRocco commences his duties as Chief Executive Officer, we will have a leadership structure whereby the positions of chief executive officer and chairman are separated, with Mr. LaRocco serving as Chief Executive Officer and Mr. Restrepo serving as Chairman. However, neither of these persons is independent under the Nasdaq listing rules. Furthermore, this leadership structure is temporary until Mr. Restrepo’s retirement. Our Board and the State Auto Mutual Board have begun the process of considering whether or not to maintain our historical leadership structure, whereby the same person serves as chairman and chief executive officer of both our Company and State Auto Mutual, or to implement a different leadership structure, such as a structure whereby the positions of chief executive officer and chairman are separated with an independent director serving as chairman. As part of this process, the Boards will consider a number of factors, including the following:

Irrespective of whether or not the positions of chief executive officer and chairman are separated, our Board has adopted a governance structure which includes:

Under our current structure, we have a designated Lead Director. Our Lead Director’s responsibilities include, among other things, leading the executive session of our independent directors, being a primary advisor to and principal point of contact with our chairman and chief executive officer, working with our chairman and soliciting input from other Board members to develop a regular board meeting schedule and an agenda for each meeting, securing input from other directors on agenda items, ensuring the adequate flow of information from management to our Board and delivering the chief executive officer’s performance evaluation on behalf of the Compensation Committee of our Board. Because our current Lead Director, Paul S. Williams, is not standing for re-election as a director, our Board has elected Director David R. Meuse to succeed Mr. Williams as Lead Director effective upon the adjournment of the Annual Meeting.

As described above, our Board and the State Auto Mutual Board will be considering whether or not to maintain our historical leadership structure whereby the same person serves as chairman and chief executive officer of both our Company and State Auto Mutual. If the decision is made to not maintain that leadership structure and the positions of chairman and chief executive officer are to be held by different persons, our Board will consider whether or not to maintain the position of Lead Director or whether the Lead Director’s responsibilities can be carried out by our new chairman.

Board Meetings and Board Committee Meetings

Our Board of Directors held five Board meetings during the fiscal year ended December 31, 2013.2014. Seven of our incumbent directors attended 100% of the Board meetings and the meetings of all committees on which they served. Our other two directors attended 89%88% or more of the Board meetings and the meetings of all committees on which they served. Eight of our nine directors are independent as defined by the Nasdaq listing rules. See “Corporate Governance—Director Independence.”

Board Committees and Committee Meetings

Our Board has established an Audit Committee, a Compensation Committee, a Nominating and Governance Committee, a Risk Committee, an Investment and Finance Committee and a standing Independent Committee. All of the members of the Audit, Compensation, Nominating and Governance, Risk and Independent Committees are independent as defineddetermined by the Nasdaq listing rules. In addition, all of the members of the Audit Committeeand Compensation Committees are independent as defined byunder the heightened standards of independence under the applicable rules of the Securities and Exchange Commission (the “SEC”). and Nasdaq. Finally, none of the members of the Independent Committee serve as directors of State Auto Mutual. Our Board has adopted charters for each of the foregoing committees. The current charters for each of these committees, along with our Corporate Governance Guidelines, Board of Directors’ Ethical Principles, Employee Code of Business Conduct and Code of Ethics for Senior Financial Officers, are available on our website. To access these documents, go to http://www.stateauto.com and click on “Investors” and then “Corporate Governance.”

The Audit Committee is charged with several responsibilities, including: (1) appointment, compensation, retention and oversight of the work performed by our independent registered public accounting firm; (2) reviewing our accounting functions, operations and management; (3) considering the adequacy and effectiveness of our internal controls and internal auditing methods and procedures; (4) meeting and consulting with our independent registered public accounting firm and with our financial and accounting personnel concerning the foregoing matters; (5) reviewing with our independent registered public accounting firm the scope of their audit and the results of their examination of our financial statements; (6) participating in the process of administering our Employee Code of Business Conduct and our Board of Directors’ Ethical Principles set forth in our Corporate Governance Guidelines; (7) establishing procedures for receipt, retention and treatment of compliance regarding accounting, internal accounting controls or auditing matters, including procedures for the confidential, anonymous submission by employees of concerns regarding accounting or auditing matters; and (8) approving in advance any other work performed by our independent registered public accounting firm that it is permitted by law to perform for us. Present members of the Audit Committee are Chairperson Eileen A. Mallesch, Robert E. Baker, David R. Meuse, and Paul S. Williams. Based on a recommendation of the Audit Committee, our Board has designated Eileen A. Mallesch as the “Audit Committee Financial Expert.” The Audit Committee held eight meetings during 2013.2014.

The Compensation Committee is charged with several responsibilities, including: (1) evaluating and approving the compensation and fringe benefits provided to our executive officers and adopting compensation policies and practices that appropriately align pay and performance; (2) approving stock-based compensation plans and grants thereunder to employees or members of the Board; and (3) evaluating the compensation provided to the members of the Board and its committees. Present members of the Compensation Committee are Chairperson Robert E. Baker, David J. D’Antoni, Alexander B. Trevor and Paul S. Williams. The Compensation Committee held sevenfive meetings during 2013.2014.

Our executive officers also serve as executive officers of State Auto Mutual, and, in general, during 20132014 the compensation expenses associated with our executive officers were allocated 65% to us and our subsidiaries and 35% to State Auto Mutual and its subsidiaries and affiliates under the Pooling Arrangement. See also “Related Person Transactions—Transactions Involving State Auto Mutual.” It is for this reason that for the past several years a director of State Auto Mutual, who is a member of State Auto Mutual’s Nominating and

Governance Committee, attended the meetings of our Compensation Committee as a non-voting member. This State Auto Mutual director, Roger P. Sugarman, was then responsible to report matters discussed at our Compensation Committee meetings to State Auto Mutual’s Nominating and Governance Committee. This person was independent as defined by the Nasdaq Marketplace Rules. In late 2013, a change was made in these procedures, whereby the Board of Directors of State Auto Mutual establishedhas its own compensation committee composed of three State Auto Mutual directors.committee. The members of the State Auto Mutual compensation committee now attend meetings of our Compensation Committee rather than Mr. Sugarman, as observers with regard to the compensation and benefit matters applicable to our and their executive officers, and report on such matters to the State Auto Mutual boardBoard of directors. TheDirectors. During 2014, the members of the State Auto Mutual compensation committee arewere Chairperson Dwight E. Smith, Michael J. Fiorile and James E. Kunk. All three are independentIn March 2015, Robert E. Baker joined this committee as defined by the Nasdaq Marketplace Rules.its chair.

The Nominating and Governance Committee is charged with several responsibilities, including: (1) selecting nominees for election as directors; (2) reviewing the performance of our Board and individual directors; (3) overseeing enterprise risk management on behalf of our Board (see “Enterprise Risk Management—The Board’s Role in Enterprise Risk Management”); and (4)(3) annually reviewing and recommending to our Board changes to our Corporate Governance Guidelines and Board of Directors’ Ethical Principles. The members of the Nominating and Governance Committee are Chairperson S. Elaine Roberts, David J. D’Antoni, Eileen A. Mallesch and Thomas E. Markert and S. Elaine Roberts.Markert. The Nominating and Governance Committee met foursix times in 2013.2014. See also “Corporate Governance—Nomination of Directors” contained elsewhere in this Proxy Statement. It is expected that, if elected, Mr. Fiorile will serve on and chair the Nominating and Governance Committee following the Annual Meeting.

The Risk Committee’s purpose is to assist the Board in fulfilling its risk management oversight responsibilities, including oversight of the Company’s enterprise risk management systems and processes. Some of the Risk Committee’s chief duties include: (1) reviewing with management the Company’s risk appetite statement; (2) monitoring and discussing with management the Company’s major enterprise risk exposures and the strategies and programs addressing these exposures; and (3) discussing information and technology risks with management. The members of the Risk Committee are Chairperson S. Elaine Roberts, David J. D’Antoni, Eileen A. Mallesch and Thomas E. Markert. Formed in late 2014, the Risk Committee met only once during 2014 but, beginning in 2015, will meeting at least quarterly in accordance with its charter. It is expected that, if elected, Mr. Fiorile will serve on and chair the Risk Committee following the Annual Meeting.

The Investment and Finance Committee oversees our investment functions and those of our insurance subsidiaries. The members of the Investment and Finance Committee are Chairperson David R. Meuse, Thomas E. Markert, Robert P. Restrepo, Jr., S. Elaine Roberts and Alexander B. Trevor. The Investment and Finance Committee met four times in 2013.2014.

TheIndependent Committees of STFC and State Auto Mutual

Both STFC and State Auto Mutual have standing Independent Committees. The members of the STFC Independent Committee must be independent from State Auto management, be independent as determined under the Nasdaq listing rules, and be independent from State Auto Mutual. The members of the State Auto Mutual Independent Committee must be both independent from State Auto management and independent from STFC.

These Independent Committees principally servesserve to review related person transactions between or among us and our subsidiaries, on the one hand, and State Auto Mutual and its subsidiaries and affiliates, on the other. TheAccordingly, before our Company and State Auto Mutual may enter into a related person transaction, each of

these Independent CommitteeCommittees must separately review the agreement and separately recommend approval to their respective Boards. Also, each of these Independent Committees separately reviews, on an annual basis, related person transactions which by their terms contain no specific termination date or which renew automatically at the end of the current term, and each of these Independent Committees separately decides whether to recommend that their respective Boards approve the renewal of such related person transaction.

These Independent Committees also helpshelp to determine which entity, our Company or State Auto Mutual, is best suited to take advantage of transactional opportunities presented by a third party. In evaluating business opportunities, these Independent Committees may elect to meet jointly, but in any event it is understood that each Independent Committee must receive substantially identical information in making its respective evaluation of the business opportunity. In this context, our Independent Committee strives to vigorously protect the interests of STFC and its shareholders, considering only the merits of the proposal, free from extraneous considerations or influences. As part of the review process, each of these Independent Committees must separately evaluate the business opportunity and separately recommend approval to their respective Boards before the two Boards of Directors may vote on any joint recommendation to proceed with the business transaction.

The members of the standingour Independent Committee are Chairperson Alexander B. Trevor, Robert E. Baker, David J. D’Antoni, and Paul S. Williams.Williams; none of whom are members of the Board of Directors of State Auto Mutual. The members of the State Auto Mutual Independent Committee are Chairperson James E. Kunk, Marsha P. Ryan, Edwin J. Simcox, Dwight E. Smith and Roger P. Sugarman; none of whom are members of our Company’s Board of Directors. Our Independent Committee, which only meets as needed, held twothree meetings in 2013.2014. It is expected that, following the Annual Meeting, the members of our Independent Committee will be Mr. Trevor, Mr. D’Antoni, Ms. Mallesch (if elected), Mr. Markert, Mr. Meuse and Ms.  Roberts.

Executive Sessions of Independent Directors

Our Board meets in executive session, without management present, prior to each regular quarterly Board meeting. Consistent with our Corporate Governance Guidelines and the Nasdaq listing rules, during 2014 there were four executive sessions with only independent directors present. In addition, following each regular quarterly Board meeting, our Board meets in executive session with the State Auto Mutual board of directors, without management present. Our Corporate Governance Guidelines provide that the Lead Director acts as the presiding director at these executive sessions.

Compensation of Outside Directors and Outside Director Compensation Table

Our non-employee directors, who we refer to as our “outside directors,” receive compensation for the services they perform as members of our Board and the Board committees on which they serve. The charter for the Compensation Committee requires the Compensation Committee to annually review the compensation of our outside directors and recommend any changes to such compensation to our Board. In accordance with this requirement,For 2014, the Compensation Committee reviewed the compensation oftotal annual retainer paid to our outside directors at its November 2013 meeting with the assistance of Pay Governance, LLC, the Compensation Committee’s compensation consultant. At the meeting, Pay Governance, LLC discussed its report on director compensation which analyzed the director compensation data set forth in the proxy statements filed in 2013 by certain members of the Company’s peer group. Pay Governance, LLC found that this data supports the conclusion that the target total compensation for outside directors who do not serve as the chairperson of a Board committee is within the range of the peer group median compensation and could be left unchanged at $125,000. Pay Governance, LLC recommended that the additional cash retainer paid to each chairperson of our Board committees could be increased by $2,500 to reflect the median paid by the peer group. After considering Pay Governance, LLC’s report and analysis and the underlying data, the Compensation Committee decided to recommend that our Board increase the committee chairpersons’ retainers by $2,500 but maintain the current level of total compensation paid to the Lead Director and to outside directors who do not serve as the chairperson of a Board committee. Our

Board approved at its November 7, 2013 meeting the increase to committee chairpersons’ retainers recommended by the Compensation Committee.

The total compensation of our outside directors for 2013 was $125,000, with $65,000, or 52%, paid in an annual cash retainer of $65,000 and $60,000, or 48%, paid in equity compensation in the form of RSUs. For 2015, in conjunction with the decision by the Boards of Directors of our Company and State Auto Mutual to have two common directors on each Board, the Compensation Committees of our Company and State Auto Mutual met jointly to consider the director compensation arrangements for both Boards. The Compensation Committees reviewed peer group compensation and market date provided by Pay Governance, LLC, our Compensation Committee’s compensation consultant. Our Compensation Committee recommended to our Board, and our Board approved, increasing the total annual retainer paid to our outside directors for 2015 to $145,000, with $75,000, or 52%, to be paid in cash and $70,000, or 48%, to be paid in equity in the form of RSUs.

No meeting fees are payable to any of our directors, as our directors are expected to attend and participate in all meetings of the Board and the Board committees on which they serve without the incentive of additional compensation. Our Board may, however, elect to pay additional meeting fees to directors if it determines that

extraordinary circumstances warrant the formation of a special committee or necessitate a large number of meetings, but nomeetings. No additional meeting fees were paid to our directors in 2013. Each2014. For 2015, each chairperson of our permanent Board committees receivedis to receive an additional $5,000$7,500 annual cash retainer, the same amount as paid in 2013,2014, other than the chairpersons of the Audit Committee and the Compensation Committee, who receivedare to receive an additional annual cash retainer of $15,000$17,500 and $10,000, respectively. Our Lead Director, Mr. Williams, was also$12,500, respectively, the same amounts as paid in 2014. The chairperson of the ad hoc executive search committee (see “—Board and Executive Leadership: CEO Succession”) received an additional cash retainer of $20,000.$3,750 per quarter during 2014, and the committee members received a cash retainer of $1,875 per quarter. The executive search committee received the same quarterly fee for the first quarter of 2015, after which the committee was disbanded upon the selection of Mr. LaRocco as our new chief executive officer. Our Lead Director will receive an additional cash retainer of $20,000, the same amount as paid in 2014. We reimburse our outside directors for the travel expenses they incur to attend Board and committee meetings and an annual Board retreat. The Company also reimburses each of our outside directors for the travel expenses incurred by a guest of the outside director to attend the annual Board retreat, subject to applicable tax laws.

Our outside directors may defer all or any portion of the cash compensation they receive for Board or committee service under our deferred compensation plan for directors. The amount of cash compensation earned by each director in 2013,2014, whether or not deferred, is included in the amounts shown in the “Fees Paid or Earned in Cash” column of the “2013“2014 Outside Director Compensation” table set forth below.

Our outside directors also receive equity compensation in the form of RSUs granted pursuant to our Outside Directors Restricted Share Unit Plan (the “Directors’ RSU Plan”). An RSU is a unit representing one Common Share. The value of each RSU, on any particular day, is equal to the last reported sale price of a Common Share on the Nasdaq Stock Market on the immediately previous trading day. Each outside director was granted 4,2143,245 RSUs under the Directors’ RSU Plan promptly following our 20132014 Annual Meeting of our Shareholders. To determine the number of RSUs granted to each outside director, the targeted annual equity compensation for each director is divided by the average daily closing price of a Common Share during the prior calendar year. In addition, whenever a dividend is paid with respect to our Common Shares, an amount equal to the value of the dividend is paid to the holders of RSUs with respect to each RSU in their account on the dividend record date in the form of additional RSUs. RSUs vest upon the completion of six months of service as an outside director from the date of grant.

Our Compensation Committee has the authority, in its capacity as the administrative committee under the Directors RSU Plan, to decrease or increase the annual award of RSUs to outside directors by 500 to 5,000 RSUs without shareholder approval. The Directors’ RSU Plan generally requires outside directors to hold their RSUs until their service on the Board terminates, at which time the director may settle the RSUs in cash or Common Shares payable, at the director’s election, in a single lump sum or in annual installments over a five- or ten-year period. An outside director elected or appointed to the Board outside of an annual meeting of our shareholders will be granted a pro rata amount of RSUs based upon the number of anticipated days after the date of election or appointment until our next annual meeting of shareholders.

20132014 Outside Director Compensation

In 2013,2014, our outside directors received the following compensation:

Outside Directors’ Ownership of Restricted Share Units and Stock Options

The following table sets forth the aggregate number of RSUs and stock options owned by each of our current outside directors as of March 7, 2014. These outstanding options were awarded to our directors under prior director stock option plans, which were replaced by the Directors’ RSU Plan in 2005. No stock options have been granted to any outside directors since 2004. The stock options, if unexercised, will expire on May 26, 2014.13, 2015.

Outside directors receive no other forms of compensation than as described in this section.

CORPORATE GOVERNANCE

Director Independence

The Nominating and Governance Committee has affirmatively determined that eight of our nine directors, namely Robert E. Baker, David J. D’Antoni, Eileen A. Mallesch, Thomas E. Markert, David R. Meuse, S. Elaine Roberts, Alexander B. Trevor and Paul S. Williams, are “independent” as defined by the Nasdaq listing rules. The Nominating and Governance Committee made this determination based upon its review of information included in director questionnaires provided by eachNo stock options have been awarded to any of the incumbentoutside directors since 2004, and a reportall previously awarded stock options have been exercised or have expired by our General Counsel. This included information on the relationships between Mr. Meuse and Stonehenge Financial Holdings and RED Capital Group, two of his affiliates. From time to time we make investments in debt and equity funds sponsored by affiliates of these two companies and receive securities broker-dealer services from an affiliate of RED Capital Group. The Nominating and Governance Committee determined that Mr. Meuse is independent because our investments in the funds sponsored by, and the fees paid to, these two companies and their affiliates are not material to us or to them and Mr. Meuse’s relationships with these companies do not interfere with his independent judgment in carrying out his responsibilities as a director. The fees paid to either Stonehenge Financial Holdings and RED Capital Group in 2013 did not exceed $200,000.

Our Corporate Governance Guidelines expressly provide that four of the five standing committees are to be comprised solely of independent directors. Our Board’s Audit, Compensation, standing Independent, and Nominating and Governance Committees meet this standard. Our Board of Directors has concluded that the Investment and Finance Committee does not need to be comprised solely of independent directors. Robert P. Restrepo, Jr., who is our employee and thus does not qualify as an independent director under the Nasdaq Marketplace Rules, is a member of the Investment and Finance Committee.terms.

Communications with the Board

As further described in our Corporate Governance Guidelines, we provide a process by which security holders may send communications to our Board. Any security holder who desires to communicate with one or more of our directors may send such communication to any or all directors through our Corporate Secretary, by e-mail to corporatesecretary@stateauto.com or in writing to the Corporate Secretary at our principal executive offices, 518 East Broad Street, Columbus, Ohio 43215. Security holders should designate whether such communication should be sent to a specific director or to all directors. The Corporate Secretary is responsible for forwarding such communication to the director or directors so designated by the security holder.

Director Attendance at Annual Meeting of Shareholders

Our Corporate Governance Guidelines provide that directors are expected to attend our annual meetings of shareholders. All of our directors who were members of the Board at the time of last year’s annual meeting of shareholders attended that meeting.

Executive Sessions of Independent Directors

Our Board meets in executive session, without management present, prior to each regular quarterly Board meeting. Consistent with our Corporate Governance Guidelines and the Nasdaq listing rules, during 2013 there were four executive sessions with only independent directors present. In addition, following each regular quarterly Board meeting, our Board meets in executive session with the State Auto Mutual board of directors, without management present. Our Corporate Governance Guidelines provide that the Lead Director acts as the presiding director at these executive sessions.

Nomination of Directors

The Nominating and Governance Committee sets the minimum qualifications for persons it will consider to recommend for nomination for election or re-election (election and re-election are hereafter collectively referred to as “election”) as a director of the Company. These minimum qualifications are described in the Nominating and Governance Committee’s charter, which is posted on our website as set forth in this section. The following matters will be considered in the Nominating and Governance Committee’s determination of persons to recommend for nomination as directors of the Company: (i) freedom from relationships or conflicts of interest that could interfere with that person’s duties as a director of the Company or to its shareholders; (ii) status as independent based on the then-current Nasdaq listing rules; (iii) business or professional skill and experience; (iv) temperament; (v) integrity; (vi) educational background; and (vii) judgment. The objective of the Nominating and Governance Committee in this regard is to nominate for election as directors persons who share our values and possess the following minimum qualifications: high personal and professional integrity; the ability to exercise sound business judgment; an inquiring mind; professional demeanor; and the time available to devote to Board activities and the willingness to do so. The Nominating and Governance Committee will consider these criteria in the context of an assessment of the perceived needs of our Board as a whole. Ultimately, the Nominating and Governance Committee’s intention is to select nominees for election to our Board who the Nominating and Governance Committee believes will be effective, in conjunction with the other members of our Board, in collectively serving the long-term interests of the shareholders. In the context of recommending an incumbent director to be re-nominated for election to our Board, the Nominating and Governance Committee will focus its assessment on the contributions of such person during his or her Board tenure and such person’s independence at that time.

As required by its charter, the Nominating and Governance Committee seeks to achieve diversity of occupational and personal backgrounds. The Nominating and Governance Committee considers diversity as a factor in director nominations. In making such selections, the Nominating and Governance Committee views diversity in a broad context to include race, gender, geography, industry experience and personal expertise.

In addition to incumbent directors who will be evaluated for re-nomination as described above, the Nominating and Governance Committee may maintain a list of other potential candidates whom the Nominating and Governance Committee may evaluate pursuant to the criteria set forth above for consideration as Board members. By following the procedures set forth below, shareholders may recommend potential candidates to be included on this list. As a matter of policy, the Nominating and Governance Committee will consider and evaluate such candidates recommended by shareholders in the same manner as all other candidates for nomination to our Board who are not incumbent directors.

The charter of the Nominating and Governance Committee details the process by which our Board of Directors fills vacancies on the Board. The Nominating and Governance Committee’s charter provides that, in the absence of extraordinary circumstances, when a director vacancy arises for any reason, the Nominating and Governance Committee will first look to the list of names of potential nominees, as described above, and make a preliminary evaluation of such person(s) based on the criteria set forth above. If there are no names on the list or if all of the names on this list are eliminated following such evaluation process, the Nominating and Governance Committee may solicit other potential nominees’ names from our other directors, directors of our parent, the Chairmanchairman or other persons who the Nominating and Governance Committee reasonably believes would have the opportunity to possess firsthand knowledge of a suitable candidate based on the criteria described above. The Nominating and Governance Committee may also hire a director search firm to identify potential candidates. Once the Nominating and Governance Committee has preliminarily concluded that a person(s) may meet the

criteria described above, the Nominating and Governance Committee will, at a minimum, obtain from such person(s) a completed Prospective Director Questionnaire which shall solicit information regarding the person’s business experience, educational background, personal information, potential conflicts of interest and information relating to the person’s business, personal or family relationships with the Company and other directors, among other matters. Following a review of such completed Prospective Director Questionnaire by the

Nominating and Governance Committee and the Chairmanchairman and counsel for the Company, the Nominating and Governance Committee will conduct at least one interview with a person(s) whose candidacy it desires to pursue. Based on all information secured from the prospective nominee, including a background check and a criminal record check, the Nominating and Governance Committee will meet and decide whether or not to recommend such person(s) for nomination for election as a director of the Company. Any decision by the Nominating and Governance Committee in this regard will reflect its judgment of the ability of the person(s) to fulfill the objectives outlined above.

We have adopted procedures by which shareholders may recommend individuals for membership to our Board. As described in its charter, it is the policy of the Nominating and Governance Committee to consider and evaluate candidates recommended by shareholders for membership on our Board in the same manner as all other candidates for nomination to our Board who are not incumbent directors. If a shareholder desires to recommend an individual for Board membership, then that shareholder must provide a written notice to the Corporate Secretary of the Company at 518 East Broad Street, Columbus, Ohio 43215 (the “Recommendation Notice”). For a recommendation to be considered by the Nominating and Governance Committee, the Recommendation Notice must contain, at a minimum, the following: (i) the name and address, as they appear on our books, and telephone number of the shareholder making the recommendation, including information on the number of shares owned; (ii) if such person is not a shareholder of record or if such shares are owned by an entity, reasonable evidence of such person’s ownership of such shares or such person’s authority to act on behalf of such entity; (iii) the full legal name, address and telephone number of the individual being recommended, together with a reasonably detailed description of the background, experience and qualifications of that individual; (iv) a written acknowledgement by the individual being recommended that he or she has consented to that recommendation and consents to our undertaking of an investigation into that individual’s background, experience and qualifications in the event that the Nominating and Governance Committee desires to do so; (v) the disclosure of any relationship of the individual being recommended with our Company or any of our subsidiaries or affiliates, whether direct or indirect; and (vi) if known to the shareholder, any material interest of such shareholder or individual being recommended in any proposals or other business to be presented at our next annual meeting of shareholders (or a statement to the effect that no material interest is known to such shareholder).

Board Leadership

We are managed under the direction of our Board in the interest of all shareholders. Our Board delegates its authority to our senior executive team to manage the day-to-day operations and ongoing affairs of our business. Our Board requires that our senior executive team review major initiatives and actions with our Board prior to implementation.

Mr. Restrepo serves as both Chairman and Chief Executive Officer under our leadership structure. He also holds these same positions with our parent, State Auto Mutual. Our Board believes this leadership structure is appropriate given the overall corporate structure of our Company and State Auto Mutual. We and our subsidiaries operate and manage our businesses in conjunction with State Auto Mutual and its subsidiaries and affiliates under various management and cost sharing agreements under the leadership and direction of the same senior management team. In addition, our insurance subsidiaries participate in a pooling arrangement with State Auto Mutual and certain of its insurance subsidiaries and affiliates which covers all of the property and casualty insurance written by our insurance subsidiaries. See “Related Person Transactions – Transactions Involving State Auto Mutual.” Because of the way our business is operated, our Board believes separating the positions of Chairman and Chief Executive Officer would cause unnecessary complexity and complications and perhaps cause a split in our strategic direction, in particular since our Board has received no indication from the State Auto Mutual Board that it is considering, or would consider, separating these positions in its leadership structure.

Our Board has adopted a counterbalancing governance structure which includes:

Our Lead Director’s responsibilities include, among other things, leading the executive session of our independent directors, being a primary advisor to and principal point of contact with our Chairman and Chief Executive Officer, working with the Chairman and soliciting input from other Board members to develop a regular board meeting schedule and an agenda for each meeting, securing input from other directors on agenda items, ensuring the adequate flow of information from management to our Board and delivering the Chief Executive Officer’s performance evaluation on behalf of the Compensation Committee of our Board. In May 2013, our Board re-elected Paul S. Williams to serve as Lead Director. Mr. Williams has served in that position since May 2010. We believe our Board leadership is effective and appropriate for our Company, given the specific circumstances of our overall corporate structure and operation in conjunction with State Auto Mutual, the established effectiveness of the Lead Director’s role on the Board, the Nominating and Governance Committee’s significant role in the nominee selection process for new or re-elected directors, the independence of eight of nine directors, and the effectiveness of the executive session meetings of independent directors at each regularly scheduled meeting of our Board.

Other Governance Issues of Interest

Formal Stock Ownership Holding Periods

The Company’s Ownership Guidelines require its Section 16 officers to hold the net amount of Common Shares obtained through the exercise of stock options or vesting of restricted stock until the later of (i) the first anniversary of the date the officer exercised the stock options or vested in the restricted stock or (ii) the date on which the officer satisfies the Ownership Target Amounts. (See “Compensation Discussion and Analysis—Stock Ownership Guidelines.”)

Directors’ Stock Ownership Guidelines

Our Company’s Corporate Governance Guidelines contain the expectation that each of our outside directors will own Company shares or RSUs granted under the RSU Plan having a total market value of at least four times the then current cash portion of the director’s annual retainer.retainer, which was $65,000 for 2014 and will be $75,000 for 2015. Each director has five years to attain this level of ownership. Our directors are required to hold all RSUs until their membership on the Board terminates.

As of March 7, 2014,13, 2015, all of our current directors have satisfied their ownership requirements under these guidelines.

Anti-Hedging Policy

A policy adopted by our Board prohibits all Company employees and members of the Board from engaging in certain hedging transactions with respect to Company securities held by them, including short sales and other transactions that shift the economic consequences of ownership of Company securities to a third party. Another policy adopted by the Board prohibits our Section 16 officers and members of the Board from holding Company securities in a margin account or otherwise pledging Company securities as collateral for a loan. (SeeSee “Compensation Discussion and Analysis—Anti-Hedging Policy.”)

Availability of Corporate Governance Documents

The following documents are available on our website at www.stateauto.com under “Investors” and then under “Corporate Governance”:

ENTERPRISE RISK MANAGEMENT

The Board’s Role in Enterprise Risk Management

Risk management activities include the development of strategies and implementation of actions intended to anticipate, identify, assess, monitor, mitigate and manage risks. Our Board views enterprise risk management as an integral part of our business and strategic planning.

Our Board’s role in the process of enterprise risk management is one of oversight. The independent structure of our Board enables objective oversight of the process. process through a governance structure that includes Board and management committees.

The direct responsibility for enterprise risk management lies with our senior management. We utilize an internal enterprise risk management committee comprised of our Chief Executive Officer, our Chief Risk Officer (“CRO”) and other senior executives. Among other things, this internal committee works with business units across the Company in carrying out its responsibility of anticipating, identifying, assessing, monitoring, mitigating and managing significant risks facing our Company.that could materially impact the Company, including its reputation, and the successful execution of its strategy.

Our Board has delegated its enterprise risk oversight responsibility to various committees of the Board, believing risk oversight is best performed by the committee with relevant knowledge in its area of responsibility.

The Nominating and GovernanceRisk Committee is the committee with primary responsibility forto assist the Board in fulfilling its oversight responsibilities, including oversight of the Company’s enterprise risk management on behalf of our Board.systems and processes. The Nominating and Governance CommitteeRisk Committee’s charter specifies that the Nominating and GovernanceRisk Committee is responsible to review with management the Company’s risk appetite, including quarterly reviews to measure compliance with the risk appetite. The charter also provides that the Risk Committee is responsible to monitor and discuss with management the Company’s major enterprise risks,risk exposures and the programsstrategies and stepsprograms management has integratedimplemented or anticipates integratingimplementing into its practices, processes and processescontrol structure to address those risks.these exposures. The charter also provides that the Nominating and GovernanceRisk Committee is responsible to regularly review and discussdiscusses with management the Company’s risk appetite statementat least annually information and monitor compliance with the risk appetite statement.technology risks, including business continuity and crisis management. The Nominating and GovernanceRisk Committee annually reviews and evaluates the Company’s risk assessment and risk management programs as well as the Nominating and Governance

Risk Committee’s own effectiveness in performing its enterprise risk management oversight duties. The Nominating and Governance Committee focus includes consideration of risks that may affect the Company’s reputation. The Nominating and GovernanceRisk Committee provides quarterly reports on its enterprise risk oversight activities to our Board.

To assist the Nominating and GovernanceRisk Committee in discharging its duties under the committeeits charter, management provides quarterly reports which monitor the status of major risks inherent in our business, including credit, risks, market, risks, liquidity, underwriting, risks, operational, risks, strategic, risks, legal, risks, litigation, risks, compliance and regulatory risks. In addition, the Nominating and GovernanceRisk Committee regularly meets with our CRO, who reports to the Chairman and Chief Executive Officer. The CRO has direct access to the Nominating and GovernanceRisk Committee, including quarterly executive sessions without other members of management in attendance. Besides meeting with the CRO, the Nominating and GovernanceRisk Committee also meets periodically with our officers responsible for the adequacy of information security, and other members of management as the Nominating and GovernanceRisk Committee deems appropriate.

Other Board committees provide enterprise risk management oversight in their specific areas of responsibility. The Risk Committee coordinates with these Board committees to avoid overlaps as well as potential gaps in overseeing the Company’s enterprise risk management.

The Audit Committee is responsible for oversight of risks related to accounting, auditing and financial reporting, establishing and maintaining effective internal controls, and the process for establishing insurance reserves. A practice ofManagement provides quarterly reports on these related risk areas and the Audit Committee is to meet regularly with the CRO for reports on selected risk areas and to meetmeets periodically with our officers responsible for the adequacy of legal and regulatory compliance. The CRO and General Counsel have direct access to the Audit Committee, including quarterly executive sessions without other members of management in attendance.

The Investment and Finance Committee considers financial risks relevant to our investment portfolio and activities, including credit and market risks, capital management and availability, liquidity and financing arrangements.

The Compensation Committee oversees the risks related to human capital and people risk, including our compensation plans and arrangements. As required by its charter, the Compensation Committee annually reviews and monitors incentive compensation arrangements to confirm that incentive pay policies and practices do not encourage unnecessary risk taking and are aligned with competitive market practices, utilizing our independent compensation consultant and outside legal counsel in this process. The Compensation Committee reviews and discusses, at least annually, the relationship between the Company’s risk management policies and practices, corporate strategy and executive management compensation. Also, the Compensation Committee annually reviews and discusses with our Company’s management any disclosures required by SEC rules and regulations relating to the Company’s compensation risk management. This discussion includes, among other things, whether and the extent to which the Company compensates and incentivizes our associates in ways that may create risks that are reasonably likely to have a material adverse effect on the Company.

Risk Assessment in Compensation Programs

Following the Compensation Committee’s review with senior management, our independent compensation consultant and outside legal counsel of potential risks within the compensation programs, the Compensation Committee has concluded that no risks exist due to the compensation programs that are reasonably likely to have a material adverse effect on the Company.

COMPENSATION DISCUSSION AND ANALYSIS

This Compensation Discussion and Analysis describes the compensation program for our named executive officers (NEOs).

Executive Summary

2013 Performance Summary

Our financial results for the most recent one- and three-year periods were generally below our targets and are reflected in the incentive payouts earned by our NEOs as highlighted below in “—2013 Compensation Summary.”

20132014 Compensation Summary

The Company’s recent financial results are reflected in the actual compensation earned by our NEOs for 2013, which was less than the target amounts for 2013.

preliminary performance information indicating that the Company’s overall performance for the 2011-20132012-2014 performance period relative to the LTIP Peer Group (as defined below in “Executive Compensation Program Elements—Long-Term Equity and Cash Incentive Compensation—Performance Award Units—PAU Award Process”) falls within the 40th40th percentile, we currently expect that the PAUs awarded to our NEOs (except for Ms. Buss) for the 2011-20132012-2014 performance period will be valued significantly below target. We currently expect that the PAUs awarded to Ms. Buss for the 2012-2014 performance period will be valued significantly above target.

The following table shows for each NEO: (i) the targeted bonus payout under the LBP for 20132014 and the actual payout under the LBP for 2013;2014; (ii) the targeted value of the PAUs granted for the 2011-20132012-2014 performance period and the amount accrued by the Company for the PAUs granted for the 2011-20132012-2014 performance period; and (iii) the targeted value of the equity compensation awarded to our NEOs in 20132014 and the value of the equity compensation awarded to our NEOs in 20132014 as of December 31, 2013.2014.

Impact of State Auto Group on Compensation of NEOs

UnderstandingOur executive compensation program reflects our corporate and management structure and our relationship with State Auto Mutual and the other members of the State Auto Group (as defined on page 6976 of this Proxy Statement) is crucial to understanding our executive compensation program.. We and our subsidiaries operate and manage our businesses together with State Auto Mutual and the other members of the State Auto Group under various pooling, management and cost sharing agreements under the leadership and direction of the same senior management team. See “Related Person Transactions—Transactions Involving State Auto Mutual” on page 6976 of this Proxy Statement for a discussion of these agreements.

As a result, our NEOs are also officers of State Auto Mutual and provide services to the Company, State Auto Mutual and the other members of the State Auto Group (e.g.(e.g., Mr. Restrepo serves as the Chairman, President and Chief Executive Officer of both the Company and State Auto Mutual). Therefore, when determining the compensation of our NEOs, the Committee takes into account the services our NEOs perform for the Company and the services they perform for State Auto Mutual and the other members of the State Auto Group. The Committee targets the total amount of each element of compensation payable to our NEOs at or close to the median compensation level in our competitive market, which we define as insurance companies similar in size to the State Auto Group, as opposed to insurance companies similar in size to the Company (See “—Benchmarking of

Executive Compensation Program Elements” on page 2734 of this Proxy Statement). In addition, the performance measures applicable to the Company performance LBP bonus opportunity and the PAUs awarded to our NEOs in 2014 are based on the performance of the State Auto Group. The charts below set forth the total revenues and total assets of the median company within the NEO Peer Group and the Company and the total net written premiums and total admitted assets of the State Auto Group, in each case for the year ended and at December 31, 20122013 (the companies included in the NEO Peer Group used for 20132014 compensation decisions were selected based on 20122013 financial data).

Total Revenues in 20122013

Total Assets as of December 31, 20122013

Because our NEOs perform services for the Company, State Auto Mutual and other members of the State Auto Group, we generally allocated the compensation expenses in 20132014 for such services 65% to the Company and its subsidiaries and 35% to State Auto Mutual and certain of its other subsidiaries and affiliates. The compensation of our NEOs as disclosed in this Proxy Statement, however, includes all compensation expenses for the services performed by our NEOs for the Company, State Auto Mutual and the other members of the State Auto Group. As a result, any analysis conducted regarding the Company and its peers based on the compensation disclosed in this Proxy Statement should consider that such disclosure includes compensation provided to our NEOs for services they performed for State Auto Mutual and the other members of the State Auto Group. The

following table allocates the compensation reported for each NEO in the “Total” column of the Summary Compensation Table on page 4653 of this Proxy Statement between the Company, on the one hand, and State Auto Mutual and certain of

its other subsidiaries and affiliates, on the other hand, based on the compensation expense allocation in effect on December 31, 2013 (i.e.2014 (i.e., 65% to the Company and 35% to State Auto Mutual and certain of its other subsidiaries and affiliates):

Pay for Performance

The Committee conducted a pay for performance analysis comparing (i) the total realizable pay earned by our CEO over the five-year period ended December 31, 20122013 to the total realizable pay earned by the CEOs of each member of the NEO Peer Group over that period, and (ii) the total shareholder return (“TSR”), premium growth, GAAP combined ratio, total equity growth and return on equity of the Company over the five-year period ended December 31, 20122013 to the TSR, premium growth, GAAP combined ratio, total equity growth and return on equity of the members of the NEO Peer Group over that period.

The total realizable pay used in our pay for performance analysis includes:

Based on input from its compensation consultant, Pay Governance, LLC, the Committee concluded that total realizable pay provides a more accurate basis for comparing the historical alignment of pay and performance than the information reported in the Summary Compensation Table. Unlike the amounts reported in the Summary Compensation Table, total realizable pay increases or decreases depending on our annual and long-term results and increases or decreases in our stock price and, as a result, better reflects the Company’s performance in comparison to the results of our peers.

The Committee uses a five-year period in its analysis to provide a long-term perspective and include multiple complete PAU performance periods. The Committee uses the NEO Peer Group (which includes insurance companies comparable to the State Auto Group in terms of both size and type of business) in its analysis because the Committee (i) takes into account the services our CEO performs for the Company and the services he performs for State Auto Mutual and the other members of the State Auto Group when determining the amount of his compensation and (ii) targets the total amount of each element of compensation payable to our CEO at or close to the median compensation level in our competitive market, which we define as insurance companies similar in size to the State Auto Group (See “—Benchmarking of Executive Compensation Program Elements” on page 2734 of this Proxy Statement for a more detailed description of the NEO Peer Group).

As shown in the chart below, (i) the total realizable pay earned by our CEO during the five-year period ended December 31, 20122013 placed the Company in the 28th33^rd percentile when compared to the NEO Peer Group (the individual members of which are identified as diamonds in the chart below) and (ii) the TSR of the Company over the five-year period ended December 31, 20122013 placed the Company in the 1stlowest percentile when compared to the NEO Peer Group.

CEO REALIZABLE PAY vs. TSR: 20082009 to 20122013

The premium growth, GAAP combined ratio, total equity growth and return on equity of the Company over the five-year period ended December 31, 20122013 placed the Company in the 2315^th percentile, 3^rd percentile, 511^th percentile 10^thpercentile and 6^thlowest percentile, respectively, when compared to the NEO Peer Group. Based on the percentile rankings of the Company yielded by our pay for performance analysis, both the Committee and Pay Governance, LLC concluded that the compensation we paid to our CEO for the five-year period ended December 31, 20122013 was aligned with our performance for the period.

Modifications to Executive Compensation Program

We held our annual shareholder advisory vote regarding the compensation of our Named Executive Officers, commonly referred to as a “say-on-pay” vote, at our 20132014 Annual Meeting of Shareholders. Our shareholders overwhelmingly approved the compensation of our Named Executive Officers, with approximately 99% of the votes cast in favor of our 20132014 “say-on-pay” resolution. Since our 20132014 Annual Meeting of Shareholders, the Committee has considered the results of the 20132014 “say-on-pay” vote in its evaluation of our executive compensation programs and practices. Based on the strong support our shareholders expressed at our 20132014 Annual Meeting of Shareholders, and the significant changes made to our executive compensation program and practices in 2011 and 2012, the Committee did not make any changes to our executive compensation

program as a result of the 20132014 “say-on-pay” vote. We did, however, make the following changes to our

executive compensation program and practices, which we believe will better align the program with what we consider to represent good corporate governance practices and improve our executive compensation program and its administration.

Compensation Policies and Practices

We endeavor to maintain governance practices that are consistent with what we believe represent current best practices, including with respect to the oversight of our executive compensation program. Our compensation policies and practices include the following:

Company terminates within one year of the change in control, provided, that if the change in control involves a change in the ownership of the Company and the successor entity does not provide benefits to the recipient of equal or greater value at the time of the change in control transaction, the award will automatically vest upon the closing of the transaction.

•

Anti-Hedging Policy. All Company employees, including our NEOs, and members of the Board are subject to a Company policy that prohibits them from engaging in certain hedging transactions with respect to Company securities held by them, including short sales and other transactions that shift the economic consequences of ownership of Company securities to a third party. Our executive officers and members of the Board are also subject to a Company policy that prohibits them from holding Company securities in a margin account or otherwise pledging Company securities as collateral for a loan.

Executive Compensation Philosophy

We structure our executive compensation program to attract, retain, motivate and reward top caliber executives who deliver on the following key elements of our business strategy:

We continue to believe that achieving success in these areas will increase the price of our Common Shares over the long term and should be rewarded by our compensation program. In addition to incenting our executives to achieve success in these areas, our executive compensation program is also designed to:

Each element of our executive compensation program serves a unique role in establishing an appropriate balance between the rewards for short-term and long-term performance that we believe will support our efforts to increase the price of our Common Shares over the long-term. (See “Executive Compensation Program Elements” on page 2935 of this Proxy Statement.)

How the Amount of Executive Compensation is Determined

Role of Committee, Senior Management, Compensation Consultants and Other Advisors

In carrying out its responsibilities, the Committee requests and receives regular input and recommendations from the Board, management, the Board of Directors and Compensation Committee of State Auto Mutual, an executive compensation consultant and other advisors. The Committee also regularly engages in discussions and continuing education to better understand compensation trends, regulatory developments relating to compensation issues and the Company’s compensation issues and objectives. New members of the Committee also complete an additional comprehensive initial training program. Management informs and assists the Committee in establishing and monitoring performance goals, and in refining our overall executive compensation program.

As a result of the sharing of services and compensation expenses among the Company and the other members of the State Auto Group (See “—Impact of State Auto Group on Compensation of NEOs” on page 2127 of this Proxy Statement), the Board of Directors and Compensation Committee of State Auto Mutual isare involved in the performance evaluation process of our CEO. In addition, the members of State Auto Mutual’s Compensation Committee are permitted to attend the meetings of the Committee as observers.Committee. (See “Board of Directors“Corporate Governance and Board Committees—of Directors—Board CommitteesMeetings and Board Committee Meetings” on page 1017 of this Proxy Statement.)

In making compensation decisions related to both the form and the amount of compensation, the Committee has historically relied upon competitive information obtained from its compensation consultant. In 2013,2014, the Committee engaged and utilized the services of Pay Governance, LLC, a compensation consultant. Pay Governance, LLC performs services solely for the Committee. During 2013,2014, Pay Governance, LLC attended and participated in all Committee meetings and advised the Committee regarding (i) the effectiveness, competitiveness and design of our overall executive compensation program, its policies and ofpractices and specific compensation packages for our NEOs and other executives, (ii) the competitiveness of compensation to our outside directors in comparison to their peers at similar public companies, (iii) the composition of the NEO Peer Group, (iv) the content and form of this Compensation Discussion and Analysis, and (v) the alignment between the compensation of our NEOs and our performance.performance and (vi) special requests of the Committee with respect to issues relating to the Company’s executive compensation program. During 2013,2014, the Company did not engage Pay Governance, LLC or its affiliates for any services beyond its support of the Committee.

In 2013,2014, the Committee requested and received completed questionnaires from Pay Governance, LLC and the Committee’s outside legal counsel relating to their respective independence. Based on the completed questionnaires and other factors, the Committee has confirmed the independence of Pay Governance, LLC and the Committee’s outside legal counsel and determined that its engagement of Pay Governance, LLC and the Committee’s outside legal counsel did not raise any conflict of interest.

Benchmarking of Executive Compensation Program Elements

We believe that in order to achieve the objectives of our executive compensation program, including retaining our executive talent, the Company must target competitive compensation. To determine what constitutes competitive compensation for our NEOs, the Committee considers data contained in (and analysis of such data provided by its compensation consultant):

NEO Peer Group

The Committee, with input from its compensation consultant and management, approves property and casualty insurance companies to be part of the NEO Peer Group based on (i) their status as public companies and (ii) whether their size and business overlap with the State Auto Group, which is larger than the Company. Public companies are selected because they are required to publicly disclose detailed information in their SEC filings regarding the compensation of their NEOs and their executive compensation programs, which allows us to compare the competitiveness of the compensation of our NEOs and executive compensation program with those of our public company competitors. In considering business overlap, companies are selected that have a significant portion of their business in personal and commercial automobile, homeowners, specialty, workersworkers’ compensation and commercial property and casualty insurance. The Committee considers premium volume, total assets, market capitalization and number of employees when determining whether a company’s size overlaps with the State Auto Group. Companies similar in size to the State Auto Group are selected because our NEOs are also officers of State Auto Mutual and provide services to our Company, State Auto Mutual and the other members of the State Auto Group. Some of the companies in the NEO Peer Group, however, are substantially larger than the State Auto Group while others are smaller. Normally, companies included in the NEO Peer Group are within one-half to two times the size of State Auto Group. The size of the median company within the NEO Peer Group is comparable to the State Auto Group. The members of the NEO Peer Group change periodically because of mergers, acquisitions, start-ups, spinoffs and similar transactions.

The NEO Peer Group used for 20132014 compensation decisions was comprised of the following 2019 companies:

Survey Data

The Survey Data complements the NEO Peer Group information by providing broader comparisons, which allows us to more comprehensively assess the compensation we pay to our executive officers relative to the compensation paid in the insurance and financial services industry to similar positions.

Use of Compensation Data

When setting base salaries, short-term and long-term incentive compensation, we use NEO Peer Group data when it relates to a comparable position at the Company and Survey Data that relates to individuals in similar positions at insurers similar in size to the State Auto Group (which we refer to as our “competitive market”). We use NEO Peer Group data to benchmark the compensation of some NEOs and Survey Data to benchmark the compensation of our NEOs and other executives. If relevant data is available from both the NEO Peer Group and

the Survey Data for a position, we average the results to determine the benchmark. For example, if the median level of base salary for chief executive officers reported by the NEO Peer Group and the Survey Data was $815,000 and $840,000, respectively, we would average the two results to establish a median base salary target of $827,500.

The Committee targets the total amount of compensation payable to our NEOs at or close to the median compensation level in the competitive market by setting the target amount of each element of compensation at or near the median level of compensation in the competitive market. Because it believes superior performance should be rewarded, the Committee provides our NEOs with the opportunity to earn total compensation in the 75th percentile (or higher) of the competitive market if performance significantly exceeds target results.

Conversely, if Company or individual performance is substantially below target or planned results, the Committee believes NEOs should receive substantially less than the median level of total compensation in the competitive market (i.e.(i.e., in the bottom quartile). The total amount of compensation that the Committee targeted as payable to each of our NEOs for 20132014 was reasonably competitive with the median level of compensation in the NEO Peer Group and the Survey Data, except for Mr. Fitch who is paid above this range due to his substantial experience and the importance of his skill set to our strategic objectives. Certain compensation elements for Mr. Restrepo, such as base salary, retirement benefits, employee benefits and executive perquisites, are subject to the terms of his employment agreement. (See “Employment Agreements“Agreements with Named Executive Officers—Restrepo Employment Agreement” on page 5562 of this Proxy Statement.)

The Committee also uses the compensation data disclosed in the proxy statements of members of the NEO Peer Group to conduct pay for performance comparisons that helpshelp it (i) understand the expectations of companies within the NEO Peer Group regarding incentive payouts and (ii) evaluate our executive compensation program.program and practices. The Committee also uses the Survey Data, in combination with information for the NEO Peer Group, to assess competitive pay levels and evaluate our executive compensation program and practices.

Use of Tally Sheets

The Committee uses tally sheets in its annual review of NEO compensation to review total compensation and each element of compensation provided to our NEOs. The tally sheets used by the Committee in its review of NEO compensation for 2013:2014: (i) listed each individual element of compensation along with the amount earned in each category for 2010, 2011, 2012 and 2012;2013; (ii) listed the target and maximum amounts of incentive compensation payable for 2012;2013; and (iii) summarized the current value of employee benefits and perquisites. The tally sheets provide a useful perspective on the total value of NEO compensation and show how potentialtotal compensation changes in one element of compensation may influence the other elements.from year to year. The Committee also used tally sheets to evaluate each NEO’s total compensation in 2014.2015.

Executive Compensation Program Elements

We believe that the mix of elements in our executive compensation program supports its objectives and provides appropriate reward opportunities. Each of these elements is discussed separately below, other than employee benefits which we offer to our NEOs on the same basis as all of our other employees and certain additional long-term disability benefits provided to Mr. Restrepo pursuant to his employment agreement in the event he is terminated by reason of disability. (See “Potential Payments Upon Termination or Change in Control—Restrepo Employment Agreement—Disability” on page 5965 of this Proxy Statement.)

The Company applies the following principles in designing our executive compensation program to achieve the objectives of our executive compensation program:

Some of our NEOs’ compensation is governed by the terms of specific agreements between the NEO and the Company. (See “—Contractual Arrangements with Named Executive Officers” beginning on page 4350 of this Proxy Statement.)

The following chart shows the elements of our executive compensation program for 20132014 (except for perquisites, which are minimal in nature).

Base Salary

Base Salary Adjustment Process

The Committee believes that in order for the Company to attract and retain the caliber of executives it needs to achieve both short- and long-term success it is critical for the Company to provide the NEOs with base salaries competitive with those provided to executives in our competitive market with similar skills, competencies, experience and levels of responsibility. Accordingly, the Committee may adjust the amount of an NEO’s base salary based on the median level of base salary for the NEO in our competitive market or to reflect a change in the NEO’s scope of responsibility or unique skills or expertise. These adjustments are subject to an aggregate base salary merit increase budget set by the Company based on our anticipated cost structure.

2013 Base Salaries of NEOs

The Committee set the 2013 base salaries of the NEOs in March 2013 as follows. The adjustments were based on: (i) an evaluation of each individual’s performance; (ii) increases in the median base salaries for individuals in similar roles at peer companies and other insurers comparable in size to the State Auto Group; and (iii) the Company’s overall merit increase budget and policies. Mr. Yano’s adjustment was also based on the Committee’s desire to move his compensation closer to the median level for similar executives in our competitive market.

2014 Base Salaries of NEOs

The Committee set the 2014 base salaries of the NEOs in March 2014 as follows. The adjustments were based on: (i) an evaluation of each individual’s performance; (ii) increases in the median base salaries for individuals in similar roles at peer companies and other insurers comparable in size to the State Auto Group; and (iii) the Company’s overall merit increase budget and policies.

2015 Base Salaries of NEOs

The Committee set the 2015 base salaries of the NEOs in March 2015 as follows. The adjustments were based on: (i) an evaluation of each individual’s performance; (ii) increases in the median base salaries for individuals in similar roles at peer companies and other insurers comparable in size to the State Auto Group; and (iii) the Company’s overall merit increase budget and policies. In addition, Ms. Buss’ increase was designed to move her compensation closer to the 75^th percentile of the competitive market for similar executives to reward her for the results of her business unit and her strategic value to the Company.

Short-Term Incentive Compensation

The LBP—the short-term incentive plan in which our NEOs participate—is intended to provide personal liquidity to our NEOs, focus our NEOs on achieving our short-term strategic objectives and balance the focus of our long-term incentive plans. The following table shows the amount of short-term cash incentive compensation paid to each NEO for 20132014 under the LBP. Total bonuses for the NEOs were below target, except for the bonus of Ms. Buss which reflects the performance of her business unit.above target.

Leadership Bonus Plan Bonuses

Basis for LBP Bonuses

The LBP is an annual cash incentive program for our executives. For our NEOs, the LBP consists of two components: (i) components—a Company performance component and (ii) an individual performance component. For 2013, 75%2014, the Committee (i) maintained the percentages of an NEO’sthe LBP target bonus opportunity was based on Company performance relative to annual plan targets and individual performance at 75% and 25% was, respectively, for Mr. Restrepo, (ii) reduced the percentage of the LBP target bonus opportunity based on Company performance relative to annual plan targets to 70% for Ms. Buss and 65% for Messrs. English, Fitch and Yano and (iii) increased the percentage of the LBP target bonus opportunity based on individual performance.performance to 30% for Ms. Buss and 35% for Messrs. English, Fitch and Yano. The Committee made these adjustments to enhance the emphasis of the LBP for our non-CEO NEOs during the CEO transition period on (i) teamwork among our non-CEO NEOs and (ii) the individual responsibilities of our non-CEO NEOs for corporate initiatives. The Committee made smaller adjustments to the allocation of Ms. Buss’s LBP target bonus opportunity because, unlike our other NEOs, a portion of her LBP bonus is subject to the achievement of performance measures relating to her business unit. The Committee maintained the allocation of Mr. Restrepo’s LBP target bonus opportunity because it believed the emphasis of such allocation on the Company’s results and business plan remained appropriate for our CEO. The Committee believes that this allocationall of these allocations appropriately focusesfocus our NEOs on attaining objective, quantitative financial results based on the Company’s results and business plan, while also providing for the recognition of individual achievements and strategically important non-financial outcomes.

LBP Award Process

The Committee typically selects the performance measures for the Company performance component of the LBP for each NEO, establishes individualthe threshold, target and maximum performance goals for each performance measure and determines the amounts payable to each NEO upon satisfaction of the threshold, target and maximum performance goals at the beginning of each year and confirms the achievement of those results at the end of the year. The Committee normally establishes threshold, target and maximum performance goals that determine the amount of the Company performance bonus that is earned. At the end of the year, management provides the Committee with the audited financial results achieved by the Company for each performance measure selected by the Committee. Based on this information, the Committee certifies the extent to which the performance goals were achieved before paymentand determines the amount of the Company performance bonus if any, is made.payable to each NEO. In 2014, the Committee deviated from this approach by approving adjustments (i) in May 2014 to the allocation of the NEOs’ target bonus opportunities between the Company performance component and the individual performance component and (ii) in August 2014 to the LBP Combined Ratio, Non-Catastrophe Loss Ratio and specialty insurance combined ratio performance measures selected for the Company performance component of the LBP. These adjustments excluded from the LBP Combined Ratio, Non-Catastrophe Loss Ratio, and specialty

insurance combined ratio performance measures $129.7 million in charges related to reserve strengthening for our terminated RED program business and also excluded from the LBP Combined Ratio performance measure $10.6 million in information technology reorganization-related severance expenses and vendor fees. These performance measures, as adjusted, are referred to in this Proxy Statement as Adjusted LBP Combined Ratio, Adjusted Non-Catastrophe Loss Ratio and Adjusted specialty insurance combined ratio. The Committee retainsapproved these adjustments because these charges, expenses and fees were not anticipated when it originally selected and established the power2014 performance measures for the Company performance component of the LBP. The Committee believed that the adjustments were appropriate to reduce, but not increase,preserve the amount2014 bonus opportunities of anythe LBP participants, consistent with the objectives of our short-term incentive compensation program and in the best interests of the Company and its shareholders. As a result of these adjustments, the portion of the Company performance bonus payableearned by the NEOs for 2014 that was attributable to an NEO subject tothe Adjusted LBP Combined Ratio, Adjusted Non-Catastrophe Loss Ratio and Adjusted specialty insurance combined ratio performance measures does not constitute “qualified performance-based compensation” for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). (See “—Tax Deductibility