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
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Safety Insurance Group, Inc.Office of Investor
Relations877-951-2522InvestorRelations@SafetyInsurance.com
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