Safety Insurance Group, Inc. (NASDAQ:SAFT) today reported third
quarter 2018 results. Net income for the quarter ended
September 30, 2018 was $28.9 million, or $1.88 per diluted
share, compared to net income of $18.0 million, or $1.18 per
diluted share, for the comparable 2017 period. Net income for the
nine months ended September 30, 2018 was $64.8 million, or
$4.24 per diluted share, compared to net income of $51.1 million,
or $3.36 per diluted share, for the comparable 2017 period.
Non-generally accepted accounting principles (“non-GAAP”) operating
income, as defined below, for the quarter ended September 30,
2018 was $1.76 per diluted share, compared to $1.06 per diluted
share, for the comparable 2017 period. Non-GAAP operating income
for the nine months ended September 30, 2018 was $4.29 per
diluted share, compared to $3.15 per diluted share, for the
comparable 2017 period. Safety’s book value per share increased to
$46.57 at September 30, 2018 from $46.06 at December 31,
2017 primarily as a result of net income, offset by decreases in
unrealized gains. Safety paid $0.80 per share in dividends to
investors during each of the quarters ended September 30, 2018
and 2017. Safety paid $3.00 per share in dividends to investors
during the year ended December 31, 2017.
Direct written premiums for the quarter ended September 30,
2018 increased by $4.0 million, or 1.9%, to $219.9 million from
$215.9 million for the comparable 2017 period. Direct written
premiums for the nine months ended September 30, 2018
increased by $14.1 million, or 2.2%, to $656.7 million from $642.6
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 September 30,
2018 increased by $3.0 million, or 1.5%, to $207.5 million from
$204.5 million for the comparable 2017 period. Net written premiums
for the nine months ended September 30, 2018 increased by $3.8
million, or 0.6%, to $613.0 million from $609.2 million for the
comparable 2017 period. Net earned premiums for the quarter ended
September 30, 2018 increased by $1.5 million, or 0.7%, to
$197.0 million from $195.5 million for the comparable 2017 period.
Net earned premiums for the nine months ended September 30,
2018 increased by $5.1 million, or 0.9%, to $583.1 million from
$578.1 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 September 30, 2018, loss and loss
adjustment expenses incurred decreased by $7.1 million, or 5.7%, to
$116.7 million from $123.8 million for the comparable 2017 period.
For the nine months ended September 30, 2018, loss and loss
adjustment expenses incurred decreased by $1.7 million, or 0.5%, to
$367.6 million from $369.3 million for the comparable 2017 period.
Loss, expense, and combined ratios calculated under U.S. generally
accepted accounting principles for the quarter ended
September 30, 2018 were 59.2%, 31.7%, and 90.9%, respectively,
compared to 63.3%, 32.2%, and 95.5%, respectively, for the
comparable 2017 period. Loss, expense, and combined ratios
calculated under U.S. generally accepted accounting principles for
the nine months ended September 30, 2018 were 63.0%, 31.7%,
and 94.7%, respectively, compared to 63.9%, 31.8%, and 95.7%,
respectively, for the comparable 2017 period. Total prior year
favorable development included in the pre-tax results for the
quarter ended September 30, 2018 was $13.0 million compared to
$10.8 million for the comparable 2017 period. Total prior year
favorable development included in the pre-tax results for the nine
months ended September 30, 2018 was $39.4 million compared to
$31.2 million for the comparable 2017 period.
Net investment income for the quarter ended September 30,
2018 increased by $1.6 million, or 17.0%, to $11.1 million from
$9.5 million for the comparable 2017 period. Net investment income
for the nine months ended September 30, 2018 increased by $3.5
million, or 12.5%, to $31.8 million from $28.3 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 September 30, 2018
was 3.4% compared to 3.0% for the comparable 2017. Net effective
annualized yield on the investment portfolio for the nine months
ended September 30, 2018 was 3.3% compared to 3.0% for the
comparable 2017. Our duration was 3.7 years at September 30,
2018 and December 31, 2017.
Today, our Board of Directors approved a $0.80 per share
quarterly cash dividend on its issued and outstanding common stock
payable on December 14, 2018 to shareholders of record at the close
of business on December 3, 2018.
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 September 30, 2018, an increase of $2.4
million for the change in unrealized gains was recognized within
income before income taxes and income tax expense was increased by
$0.5 million. For the nine months ended September 30, 2018, a
decrease of $3.7 million for the change in unrealized gains was
recognized within income before income taxes and income tax expense
was reduced by $0.8 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)
September 30, December 31, 2018
2017 (Unaudited) Assets Investments: Fixed
maturities, available for sale, at fair value (amortized cost:
$1,142,816 and $1,156,697)
$ 1,131,133 $ 1,172,026
Equity securities, at fair value (cost: $140,796 and $90,481)
158,434 111,867 Other invested assets
25,961
23,162 Total investments
1,315,528 1,307,055 Cash and
cash equivalents
51,317 41,708 Accounts receivable, net of
allowance for doubtful accounts
209,470 190,649 Receivable
for securities sold
984 1,380 Accrued investment income
9,137 8,876 Taxes recoverable
170 908 Receivable from
reinsurers related to paid loss and loss adjustment expenses
24,340 24,776 Receivable from reinsurers related to unpaid
loss and loss adjustment expenses
100,565 83,085 Ceded
unearned premiums
34,414 32,175 Deferred policy acquisition
costs
77,533 72,202 Deferred income taxes
3,423 —
Equity and deposits in pools
31,469 28,246 Other assets
20,280 16,219
Total assets $
1,878,630 $ 1,807,279
Liabilities Loss and
loss adjustment expense reserves
$ 582,957 $ 574,054
Unearned premium reserves
460,405 428,257 Accounts payable
and accrued liabilities
57,857 60,701 Payable for securities
purchased
7,385 4,188 Payable to reinsurers
33,814
13,801 Deferred income taxes
— 2,917 Other liabilities
24,341 22,345
Total liabilities
1,166,759 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
193,991 189,714 Accumulated other
comprehensive (loss) income, net of taxes
(9,229) 24,269
Retained earnings
610,768 570,693 Treasury stock, at cost:
2,279,570 shares
(83,835) (83,835)
Total
shareholders’ equity 711,871 701,016
Total liabilities and shareholders’ equity $
1,878,630 $ 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 September 30, Nine Months Ended
September 30, 2018 2017 2018
2017 Net earned premiums
$
196,968 $ 195,524
$ 583,126 $ 578,059 Net
investment income
11,120 9,503
31,839 28,313 Earnings
from partnership investments
1,188 351
6,539 1,233
Net realized gains on investments
53 2,717
2,948
4,826 Change in net unrealized gains on equity investments
2,444 —
(3,749 ) — Net impairment losses on
investments (a)
(228 ) (256 )
(228 )
(256 ) Finance and other service income
4,362
4,690
13,121 13,373
Total revenue
215,907 212,529
633,596 625,548
Losses and loss adjustment expenses
116,693 123,792
367,564 369,271 Underwriting, operating and related expenses
62,496 62,994
184,925 183,643 Interest expense
22 22
67 67
Total expenses
179,211 186,808
552,556 552,981
Income before income taxes
36,696 25,721
81,040
72,567 Income tax expense
7,788 7,767
16,191 21,489
Net
income $ 28,908 $ 17,954
$
64,849 $ 51,078
Earnings per
weighted average common share: Basic
$ 1.90
$ 1.19
$ 4.28 $ 3.38
Diluted
$ 1.88 $ 1.18
$
4.24 $ 3.36
Cash dividends paid per
common share $ 0.80 $ 0.80
$
2.40 $ 2.20
Number of shares used in
computing earnings per share: Basic
15,091,754
15,021,189
15,076,214
15,007,221 Diluted
15,250,332
15,161,962
15,217,927
15,124,044 (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 $ 28,908 $ 17,954
$ 64,849
$ 51,078 Exclusions from net income: Net realized gains on
investments
(53 ) (2,717 )
(2,948 )
(4,826 ) Change in net unrealized gains on equity investments
(2,444 ) -
3,749 - Net impairment losses on
investments
228 256
228 256 Income tax (expense)
benefit
476 861
(216 ) 1,600
Non-GAAP operating
income $ 27,115 $ 16,354
$ 65,662 $ 48,108
Net income per diluted share $
1.88 $ 1.18
$ 4.24 $ 3.36 Exclusions from net
income: Net realized gains on investments
- (0.18 )
(0.19 ) (0.32 ) Change in net unrealized gains on
equity investments
(0.16 ) -
0.25 - Net
impairment losses on investments
0.01 0.02
0.02 0.02
Income tax (expense) benefit
0.03 0.04
(0.03 ) 0.09
Non-GAAP
operating income per diluted share $ 1.76
$ 1.06
$ 4.29 $
3.15
Safety Insurance Group, Inc. and
Subsidiaries
Additional Premium Information
(Unaudited)
(Dollars in thousands)
Three Months Ended September 30, Nine
Months Ended September 30, 2018
2017 2018 2017
Written Premiums Direct
$ 219,930 $
215,919
$ 656,713 $ 642,633 Assumed
7,750
8,291
23,995 25,326 Ceded
(20,174 )
(19,743 )
(67,674 ) (58,806 )
Net written premiums
$ 207,506 $ 204,467
$ 613,034 $ 609,153
Earned Premiums Direct
$ 212,209 $ 207,597
$ 624,325 $ 610,636 Assumed
7,469 7,525
24,236 24,237 Ceded
(22,710 )
(19,598 )
(65,435 ) (56,814 ) Net
earned premiums
$ 196,968 $ 195,524
$ 583,126 $ 578,059
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version on businesswire.com: https://www.businesswire.com/news/home/20181031005774/en/
Safety Insurance Group, Inc.Office of Investor
Relations877-951-2522InvestorRelations@SafetyInsurance.com
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