Safety Announces Second Quarter 2019 Results and Raises Third Quarter 2019 Dividend

Safety Insurance Group, Inc. (NASDAQ:SAFT) today reported second quarter 2019 results. Net income for the quarter ended June 30, 2019 was $25.9 million, or $1.68 per diluted share, compared to net income of $26.8 million, or $1.75 per diluted share, for the comparable 2018 period. Net income for the six months ended June 30, 2019 was $55.9 million, or $3.63 per diluted share, compared to net income of $35.9 million, or $2.35 per diluted share, for the comparable 2018 period. Non-generally accepted accounting principles (“non-GAAP”) operating income, as defined below, for the quarter ended June 30, 2019 was $1.47 per diluted share, compared to $1.81 per diluted share, for the comparable 2018 period. Non-GAAP operating income for the six months ended June 30, 2019 was $2.83 per diluted share, compared to $2.52 per diluted share, for the comparable 2018 period. Safety’s book value per share increased to $50.90 at June 30, 2019 from $47.01 at December 31, 2018. Safety paid $0.80 per share in dividends to investors during each of the quarters ended June 30, 2019 and 2018, respectively. Safety paid $3.20 per share in dividends to investors during the year ended December 31, 2018.

Today, our Board of Directors approved and declared an increase in the quarterly cash dividend from $0.80 to $0.90 per share on the issued and outstanding common stock payable on September 13, 2019 to shareholders of record at the close of business on September 3, 2019.

Direct written premiums for the quarter ended June 30, 2019 increased by $0.5 million, or 0.2%, to $233.6 million from $233.1 million for the comparable 2018 period. Direct written premiums for the six months ended June 30, 2019 increased by $0.2 million to $437.0 million from $436.8 million for the comparable 2018 period. The 2019 increase occurred primarily in our commercial automobile and homeowners lines of business.

Net written premiums for the quarter ended June 30, 2019 increased by $1.8 million, or 0.8%, to $217.3 million from $215.5 million for the comparable 2018 period. Net written premiums for the six months ended June 30, 2019 increased by $1.7 million, or 0.4%, to $407.2 million from $405.5 million for the comparable 2018 period. Net earned premiums for the quarter ended June 30, 2019 increased by $2.3 million, or 1.2%, to $196.4 million from $194.1 million for the comparable 2018 period. Net earned premiums for the six months ended June 30, 2019 increased by $4.8 million, or 1.2%, to $390.9 million from $386.1 million for the comparable 2018 period.

For the quarter ended June 30, 2019, loss and loss adjustment expenses incurred increased by $9.2 million, or 8.1%, to $122.4 million from $113.2 million for the comparable 2018 period. For the six months ended June 30, 2019, loss and loss adjustment expenses incurred decreased by $2.5 million, or 1.0%, to $248.4 million from $250.9 million for the comparable 2018 period. Loss, expense, and combined ratios calculated under U.S. generally accepted accounting principles for the quarter ended June 30, 2019 were 62.3%, 31.0%, and 93.3%, respectively, compared to 58.3%, 31.7%, and 90.0%, respectively, for the comparable 2018 period. Loss, expense, and combined ratios calculated under U.S. generally accepted accounting principles for the six months ended June 30, 2019 were 63.5%, 31.0%, and 94.5%, respectively, compared to 65.0%, 31.7%, and 96.7%, respectively, for the comparable 2018 period. Total prior year favorable development included in the pre-tax results for the quarter ended June 30, 2019 was $10.4 million compared to $12.1 million for the comparable 2018 period. Total prior year favorable development included in the pre-tax results for the six months ended June 30, 2019 was $22.3 million compared to $26.3 million for the comparable 2018 period.

Net investment income for the quarter ended June 30, 2019 increased by $0.4 million, or 3.8%, to $10.6 million from $10.2 million for the comparable 2018 period. Net investment income for the six months ended June 30, 2019 increased by $1.6 million, or 7.8%, to $22.3 million from $20.7 million for the comparable 2018 period. The increase is a result of an increase in the average invested asset balance and improved investment income yields compared to the prior year. Net effective annualized yield on the investment portfolio was 3.2% for the three months ended June 30, 2019 and 2018. Net effective annualized yield on the investment portfolio for the six months ended June 30, 2019 was 3.3% compared to 3.2% for the comparable 2018 period. Our duration on fixed maturities was 3.0 years at June 30, 2019 and 3.6 years at December 31, 2018, respectively.

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, net impairment losses on investments, change in net unrealized gains on equity securities and taxes related thereto. For the quarter ended June 30, 2019 an increase of $3.8 million for the change in unrealized gains was recognized within income before income taxes, compared to a decrease of $2.7 million recognized in the comparable 2018 period. For the six months ended June 30, 2019, an increase of $15.6 million for the change in unrealized gains was recognized in income before income taxes, compared to a decrease of $6.2 million recognized in the comparable 2018 period. Net income and earnings per diluted share are the GAAP financial measures that are most directly comparable to non-GAAP operating income and non-GAAP operating income per diluted share, respectively. A reconciliation of the GAAP financial measures to these non-GAAP measures is included in the 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, 2018 Form 10-K with the SEC on February 28, 2019 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, 2018 filed with the SEC on February 28, 2019.

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)
		June 30,					December 31,
		2019					2018
		(Unaudited)
Assets
Investments:
Fixed maturities, available for sale, at fair value (amortized cost: $1,150,224 and $1,175,413)		$		1,178,251			$		1,161,862
Equity securities, at fair value (cost: $145,041 and $142,948)				165,659					148,011
Other invested assets				30,124					23,481
Total investments				1,374,034					1,333,354
Cash and cash equivalents				37,968					37,582
Accounts receivable, net of allowance for doubtful accounts				209,658					190,062
Receivable for securities sold				964					1,039
Accrued investment income				8,304					8,420
Taxes recoverable				1,671					—
Receivable from reinsurers related to paid loss and loss adjustment expenses				28,819					13,691
Receivable from reinsurers related to unpaid loss and loss adjustment expenses				112,228					108,398
Ceded unearned premiums				35,900					33,974
Deferred policy acquisition costs				75,670					73,355
Deferred income taxes				—					8,749
Equity and deposits in pools				28,492					28,094
Operating lease right-of-use-assets				36,116					—
Other assets				23,290					19,522
Total assets		$		1,973,114			$		1,856,240
Liabilities
Loss and loss adjustment expense reserves		$		589,123			$		584,719
Unearned premium reserves				453,612					435,380
Accounts payable and accrued liabilities				56,799					71,896
Payable for securities purchased				7,684					5,156
Payable to reinsurers				21,240					12,220
Deferred income taxes				1,221					—
Taxes payable				—					6,090
Operating lease liabilities				36,116					—
Other liabilities				24,270					22,135
Total liabilities				1,190,065					1,137,596
Shareholders’ equity
Common stock: $0.01 par value; 30,000,000 shares authorized; 17,663,364 and 17,566,180 shares issued				177					176
Additional paid-in capital				199,644					196,292
Accumulated other comprehensive income (loss), net of taxes				22,141					(10,706	)
Retained earnings				644,922					616,717
Treasury stock, at cost: 2,279,570 shares				(83,835	)				(83,835	)
Total shareholders’ equity				783,049					718,644
Total liabilities and shareholders’ equity		$		1,973,114			$		1,856,240

Safety Insurance Group, Inc. and Subsidiaries Consolidated Statements of Operations (Unaudited) (Dollars in thousands, except share and per share data)
		Three Months Ended June 30,						Six Months Ended June 30,
		2019			2018			2019			2018
Net earned premiums		$	196,426		$	194,125		$	390,917		$	386,158
Net investment income			10,574			10,188			22,325			20,719
Earnings from partnership investments			735			487			1,570			5,351
Net realized gains on investments			483			1,589			319			2,895
Change in net unrealized gains on equity investments			3,754			(2,711)			15,555			(6,193)
Net impairment losses on investments (a)			(54)			—			(274)			—
Finance and other service income			4,084			4,292			8,169			8,759
Total revenue			216,002			207,970			438,581			417,689
Losses and loss adjustment expenses			122,393			113,227			248,420			250,871
Underwriting, operating and related expenses			60,908			61,573			121,342			122,429
Interest expense			23			23			45			45
Total expenses			183,324			174,823			369,807			373,345
Income before income taxes			32,678			33,147			68,774			44,344
Income tax expense			6,744			6,331			12,894			8,403
Net income		$	25,934		$	26,816		$	55,880		$	35,941
Earnings per weighted average common share:
Basic		$	1.70		$	1.77		$	3.66		$	2.37
Diluted		$	1.68		$	1.75		$	3.63		$	2.35
Cash dividends paid per common share		$	0.80		$	0.80		$	1.60		$	1.60
Number of shares used in computing earnings per share:
Basic			15,220,822			15,090,435			15,181,034			15,068,321
Diluted			15,346,234			15,213,414			15,326,121			15,202,338
(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		$	25,934		$	26,816		$	55,880		$	35,941
Exclusions from net income:
Net realized gains on investments			(483)			(1,589)			(319)			(2,895)
Change in net unrealized gains on equity investments			(3,754)			2,711			(15,555)			6,193
Net impairment losses on investments			54			-			274			-
Income tax expense (benefit) on exclusions from net income			878			(236)			3,276			(693)
Non-GAAP operating income		$	22,629		$	27,702		$	43,556		$	38,546
Net income per diluted share		$	1.68		$	1.75		$	3.63		$	2.35
Exclusions from net income:
Net realized gains on investments			(0.03)			(0.10)			(0.02)			(0.19)
Change in net unrealized gains on equity investments			(0.24)			0.18			(1.01)			0.41
Net impairment losses on investments			-			-			0.02			-
Income tax expense (benefit) on exclusions from net income			0.06			(0.02)			0.21			(0.05)
Non-GAAP operating income per diluted share		$	1.47		$	1.81		$	2.83		$	2.52

Safety Insurance Group, Inc. and Subsidiaries Additional Premium Information (Unaudited) (Dollars in thousands)
		Three Months Ended June 30,										Six Months Ended June 30,
		2019					2018					2019					2018
Written Premiums
Direct		$		233,595			$		233,050			$		436,982			$		436,783
Assumed				8,175					8,297					16,420					16,245
Ceded				(24,485	)				(25,832	)				(46,179	)				(47,500	)
Net written premiums		$		217,285			$		215,515			$		407,223			$		405,528
Earned Premiums
Direct		$		210,334			$		208,297			$		417,642			$		412,116
Assumed				8,213					7,880					17,528					16,767
Ceded				(22,121	)				(22,052	)				(44,253	)				(42,725	)
Net earned premiums		$		196,426			$		194,125			$		390,917			$		386,158

 

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