Safety Announces Fourth Quarter and Year End 2018 Results

BOSTON–(BUSINESS WIRE)–Safety Insurance Group, Inc. (NASDAQ:SAFT) today reported fourth quarter
2018 results. Net income for the quarter ended December 31, 2018 was
$18.3 million, or $1.19 per diluted share, compared to net income of
$11.3 million, or $0.72 per diluted share, for the comparable 2017
period. Net income for the year ended December 31, 2018 was $83.2
million, or $5.43 per diluted share, compared to net income of $62.4
million, or $4.10 per diluted share, for the comparable 2017 period.
Non-generally accepted accounting principles (“non-GAAP”) operating
income, as defined below, for the quarter ended December 31, 2018 was
$1.83 per diluted share, compared to $0.67 per diluted share, for the
comparable 2017 period. Non-GAAP operating income for the year ended
December 31, 2018 was $6.12 per diluted share, compared to $3.84 per
diluted share, for the comparable 2017 period. Safety’s book value per
share increased to $47.01 at December 31, 2018 from $46.06 at
December 31, 2017 primarily as a result of net income, offset by
dividends paid and decreases in unrealized gains. Safety paid $3.20 per
share in dividends to investors during the year ended December 31, 2018
compared to $3.00 per share during the year ended December 31, 2017.

Direct written premiums for the quarter ended December 31, 2018
increased by $2.3 million, or 1.2%, to $187.0 million from $184.7
million for the comparable 2017 period. Direct written premiums for the
year ended December 31, 2018 increased by $16.4 million, or 2.0%, to
$843.7 million from $827.3 million for the comparable 2017 period. The
2018 increase occurred primarily in our commercial automobile and
homeowners lines of business.

Net written premiums for the quarter ended December 31, 2018 increased
by $2.0 million, or 1.2%, to $173.9 million from $171.9 million for the
comparable 2017 period. Net written premiums for the year ended
December 31, 2018 increased by $5.8 million, or 0.8%, to $786.9 million
from $781.1 million for the comparable 2017 period. Net earned premiums
for the quarter ended December 31, 2018 increased by $2.1 million, or
1.1%, to $198.5 million from $196.4 million for the comparable 2017
period. Net earned premiums for the year ended December 31, 2018
increased by $7.2 million, or 0.9%, to $781.6 million from $774.4
million for the comparable 2017 period. Net written and net earned
premiums increased primarily due to increases in our commercial
automobile and homeowners business as discussed above.

For the quarter ended December 31, 2018, loss and loss adjustment
expenses incurred decreased by $16.7 million, or 12.4%, to $117.9
million from $134.6 million for the comparable 2017 period. For the year
ended December 31, 2018, loss and loss adjustment expenses incurred
decreased by $18.4 million, or 3.6%, to $485.5 million from $503.9
million for the comparable 2017 period. Loss, expense, and combined
ratios calculated under U.S. generally accepted accounting principles
for the quarter ended December 31, 2018 were 59.4%, 31.1%, and 90.5%,
respectively, compared to 68.6%, 33.0%, and 101.6%, respectively, for
the comparable 2017 period. Loss, expense, and combined ratios
calculated under U.S. generally accepted accounting principles for the
year ended December 31, 2018 were 62.1%, 31.6%, and 93.7%, respectively,
compared to 65.1%, 32.1%, and 97.2%, respectively, for the comparable
2017 period. Total prior year favorable development included in the
pre-tax results for the quarter ended December 31, 2018 was $17.1
million compared to $10.6 million for the comparable 2017 period. Total
prior year favorable development included in the pre-tax results for the
year ended December 31, 2018 was $56.5 million compared to $41.8 million
for the comparable 2017 period.

Net investment income for the quarter ended December 31, 2018 increased
by $1.5 million, or 14.4%, to $11.9 million from $10.4 million for the
comparable 2017 period. Net investment income for the year ended
December 31, 2018 increased by $5.0 million, or 13.0%, to $43.8 million
from $38.8 million for the comparable 2017 period. The increase is a
result of fixed maturity amortization and an increase in the average
invested asset balance compared to the prior year. Net effective
annualized yield on the investment portfolio for the quarter ended
December 31, 2018 was 3.5% compared to 3.2% for the comparable 2017. Net
effective annualized yield on the investment portfolio for the year
ended December 31, 2018 was 3.3% compared to 3.1% for the comparable
2017. Our duration was 3.6 years at December 31, 2018 and 3.7 years at
December 31, 2017, respectively.

On February 15, 2019 the Board of Directors approved a $0.80 per share
quarterly cash dividend on its issued and outstanding common stock
payable on March 15, 2019 to shareholders of record at the close of
business on March 1, 2019.

Recently Adopted Accounting Standard

As disclosed in Safety’s Annual Report on Form 10-K for the year ended
December 31, 2017, accounting guidance for financial instruments changed
in 2018 under ASU 2016-01, Financial Instruments – Overall (Subtopic
825-10): Recognition and Measurement of Financial Assets and Financial
Liabilities
. We adopted this accounting standard update, effective
January 1, 2018, using a cumulative-effect adjustment. This adjustment
moved the historical unrealized gains and losses, net of tax, on the
equity portfolio from accumulated other comprehensive earnings to
retained earnings, but had no impact on overall shareholders’ equity. In
addition, for 2018 and forward, the change in fair value for equity
securities is required to be recognized through net income rather than
through other comprehensive income. As defined below, we exclude these
unrealized gains and losses in arriving at non-GAAP operating income and
non-GAAP operating income per diluted share. For the quarter ended
December 31, 2018, a decrease of $12.6 million for the change in
unrealized gains was recognized within income before income taxes and
income tax expense was reduced by $2.6 million. For the year ended
December 31, 2018, a decrease of $16.3 million for the change in
unrealized gains was recognized within income before income taxes and
income tax expense was reduced by $3.4 million.

Non-GAAP Measures

Management has included certain non-GAAP financial measures in
presenting the Company’s results. Management believes that these
non-GAAP measures better explain the Company’s results of operations and
allow for a more complete understanding of the underlying trends in the
Company’s business. These measures should not be viewed as a substitute
for those determined in accordance with generally accepted accounting
principles (“GAAP”). In addition, our definitions of these items may not
be comparable to the definitions used by other companies.

Non-GAAP operating income and operating income per diluted share consist
of our GAAP net income adjusted by the net realized gains (losses), net
impairment losses on investments, change in net unrealized gains
(losses) on equity securities and taxes related thereto. The adjustment
for net unrealized losses on equity securities is only applicable for
2018 due to the adoption of the above mentioned accounting standard
update. Net income and earnings per diluted share are the GAAP financial
measures that are most directly comparable to operating income and
operating income per diluted share, respectively. A reconciliation of
the GAAP financial measures to these non-GAAP measures is included in
the 2018 financial highlights below.

About Safety: Safety Insurance
Group, Inc., based in Boston, MA, is the parent of Safety Insurance
Company, Safety Indemnity Insurance Company, and Safety Property and
Casualty Insurance Company. Operating exclusively in Massachusetts, New
Hampshire, and Maine, Safety is a leading writer of property and
casualty insurance products, including private passenger automobile,
commercial automobile, homeowners, dwelling fire, umbrella and business
owner policies.

Additional Information: Press releases, announcements, U. S.
Securities and Exchange Commission (“SEC”) Filings and investor
information are available under “About Safety,” “Investor Information”
on our Company website located at www.SafetyInsurance.com.
Safety filed its December 31, 2017 Form 10-K with the SEC on February
28, 2018 and urges shareholders to refer to this document for more
complete information concerning Safety’s financial results.

Cautionary Statement under “Safe Harbor” Provision of the Private
Securities Litigation Reform Act of 1995
:

This press release contains, and Safety may from time to time make,
written or oral “forward-looking statements” within the meaning of the
U.S. federal securities laws.
Forward-looking statements can be
identified by the fact that they do not relate strictly to historical or
current facts.
They often include words such as “believe,”
“expect,” “anticipate,” “intend,” “plan,” “estimate,” “aim,” “projects,”
or words of similar meaning and expressions that indicate future events
and trends, or future or conditional verbs such as “will,” “would,”
“should,” “could,” or “may”.
All statements that address
expectations or projections about the future, including statements about
the Company’s strategy for growth, product development, market position,
expenditures and financial results, are forward-looking statements.

Forward-looking statements are not guarantees of future performance.
By their nature, forward-looking statements are subject to risks and
uncertainties.
There are a number of factors, many of which are
beyond our control, that could cause actual future conditions, events,
results or trends to differ significantly and/or materially from
historical results or those projected in the forward-looking statements.

These factors include but are not limited to the competitive nature
of our industry and the possible adverse effects of such competition.

Although a number of national insurers that are much larger than we
are do not currently compete in a material way in the Massachusetts
private passenger automobile market, if one or more of these companies
decided to aggressively enter the market it could have a material
adverse effect on us.
Other significant factors include
conditions for business operations and restrictive regulations in
Massachusetts, the possibility of losses due to claims resulting from
severe weather, the possibility that the Commissioner of Insurance may
approve future Rule changes that change the operation of the residual
market, our possible need for and availability of additional financing,
and our dependence on strategic relationships, among others, and other
risks and factors identified from time to time in our reports filed with
the SEC, such as those set forth under the caption “Risk Factors” in our
Form 10-K for the year ended December 31, 2017 filed with the SEC on
February 28, 2018.

We are not under any obligation (and expressly disclaim any such
obligation) to update or alter our forward-looking statements, whether
as a result of new information, future events, or otherwise.
You
should carefully consider the possibility that actual results may differ
materially from our forward-looking statements.

 

Safety Insurance Group, Inc. and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands, except share data)

   
December 31, December 31,
2018 2017
(Unaudited)
Assets
Investments:
Securities available for sale:
Fixed maturities, available for sale, at fair value (amortized cost:
$1,175,413 and $1,156,697)
$ 1,161,862 $ 1,172,026
Equity securities, at fair value (cost: $142,948 and $90,481) 148,011 111,867
Other invested assets   23,481     23,162  
Total investments 1,333,354 1,307,055
Cash and cash equivalents 37,582 41,708
Accounts receivable, net of allowance for doubtful accounts 190,062 190,649
Receivable for securities sold 1,039 1,380
Accrued investment income 8,420 8,876
Taxes recoverable 908
Receivable from reinsurers related to paid loss and loss adjustment
expenses
13,691 24,776
Receivable from reinsurers related to unpaid loss and loss
adjustment expenses
108,398 83,085
Ceded unearned premiums 33,974 32,175
Deferred policy acquisition costs 73,355 72,202
Deferred income taxes 8,749
Equity and deposits in pools 28,094 28,246
Other assets   19,522     16,219  
Total assets $ 1,856,240   $ 1,807,279  
 
Liabilities
Loss and loss adjustment expense reserves $ 584,719 $ 574,054
Unearned premium reserves 435,380 428,257
Accounts payable and accrued liabilities 71,896 60,701
Payable for securities purchased 5,156 4,188
Payable to reinsurers 12,220 13,801
Deferred income taxes 2,917
Taxes payable 6,090
Other liabilities   22,135     22,345  
Total liabilities   1,137,596     1,106,263  
 
Shareholders’ equity
Common stock: $0.01 par value; 30,000,000 shares authorized;
17,566,180 and 17,499,544 shares issued
176 175
Additional paid-in capital 196,292 189,714
Accumulated other comprehensive (loss) income, net of taxes (10,706 ) 24,269
Retained earnings 616,717 570,693
Treasury stock, at cost: 2,279,570 shares   (83,835 )   (83,835 )
Total shareholders’ equity   718,644     701,016  
Total liabilities and shareholders’ equity $ 1,856,240   $ 1,807,279  
 
 

Safety Insurance Group, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

(Dollars in thousands, except share and per share data)

       
Three Months Ended December 31, Years Ended December 31,
2018 2017 2018 2017
 
Net earned premiums $ 198,461 $ 196,361 $ 781,587 $ 774,420
Net investment income 11,949 10,445 43,788 38,758
Earnings from partnership investments 376 849 6,915 2,082
Net realized gains on investments 278 1,210 3,226 6,036
Change in net unrealized gains on equity investments (12,575 ) (16,324 )
Net impairment losses on investments (a) (228 ) (256 )
Finance and other service income   4,412     4,700     17,533     18,073  
Total revenue   202,901     213,565     836,497     839,113  
 
Losses and loss adjustment expenses 117,949 134,616 485,513 503,887
Underwriting, operating and related expenses 61,718 64,793 246,643 248,436
Interest expense   23     23     90     90  
Total expenses   179,690     199,432     732,246     752,413  
 
Income before income taxes 23,211 14,133 104,251 86,700
Income tax expense   4,865     2,824     21,056     24,313  
Net income $ 18,346   $ 11,309   $ 83,195   $ 62,387  
 
Earnings per weighted average common share:
Basic $ 1.21   $ 0.73   $ 5.48   $ 4.13  
Diluted $ 1.19   $ 0.72   $ 5.43   $ 4.10  
 
Cash dividends paid per common share $ 0.80   $ 0.80   $ 3.20   $ 3.00  
 
Number of shares used in computing earnings per share:
Basic   15,092,305     15,021,228     15,080,269     15,010,751  
Diluted   15,267,325     15,170,518     15,229,898     15,135,348  
 
(a) No portion of the other-than-temporary impairments recognized in
the period indicated were included in Other Comprehensive Income.
 
 
Reconciliation of Net Income to Non-GAAP Operating Income
 
Net income $ 18,346 $ 11,309 $ 83,195 $ 62,387
Exclusions from net income:
Net realized gains on investments (278 ) (1,210 ) (3,226 ) (6,036 )
Change in net unrealized gains on equity investments 12,575 16,324
Net impairment losses on investments 228 256
Income tax (expense) benefit (2,582 ) 424   (2,798 ) 2,023  
Non-GAAP operating income $ 28,061   $ 10,523   $ 93,723   $ 58,630  
 
Net income per diluted share $ 1.19 $ 0.72 $ 5.43 $ 4.10
Exclusions from net income:
Net realized gains on investments (0.02 ) (0.08 ) (0.21 ) (0.40 )
Change in net unrealized gains on equity investments 0.82 1.07
Net impairment losses on investments 0.01 0.02
Income tax (expense) benefit (0.16 ) 0.03   (0.18 ) 0.12  
Non-GAAP operating income per diluted share $ 1.83   $ 0.67   $ 6.12   $ 3.84  
 
 

Safety Insurance Group, Inc. and Subsidiaries

Additional Premium Information

(Unaudited)

(Dollars in thousands)

       
Three Months Ended December 31,   Year Ended December 31,
2018 2017 2018 2017
Written Premiums
Direct $ 186,962 $ 184,683 $ 843,675 $ 827,316
Assumed 8,408 8,888 32,403 34,214
Ceded   (21,492 )   (21,670 )   (89,166 )   (80,476 )
Net written premiums $ 173,878   $ 171,901   $ 786,912   $ 781,054  
 
Earned Premiums
Direct $ 212,434 $ 208,168 $ 836,759 $ 818,804
Assumed 7,960 8,265 32,196 32,502
Ceded   (21,933 )   (20,072 )   (87,368 )   (76,886 )
Net earned premiums $ 198,461   $ 196,361   $ 781,587   $ 774,420  

Contacts

Safety Insurance Group, Inc.
Office of Investor Relations
877-951-2522
InvestorRelations@SafetyInsurance.com

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