Safety Insurance Group, Inc. (NASDAQ:SAFT) today reported first
quarter 2020 results.
During this challenging time, Safety Insurance Group, Inc. (“the
Company”) has taken many actions that address the health and
well-being of our employees while still serving the needs of our
agents and insureds. Beginning in March 2020, the global pandemic
associated with the novel coronavirus COVID-19 (“COVID-19”) and
related economic conditions caused significant economic effects
including temporary closures of many businesses and reduced
consumer activity due to shelter-in-place, stay-at-home and other
governmental actions. This, in turn, caused significant market
volatility and as a result the Company experienced investment
losses driven by the impact of changes in fair value on the
Company's equity investments.
The COVID-19 pandemic has led to a significant amount of
insurance related regulatory activity. At the state level,
legislative efforts have largely focused on bills related to
coverage of business interruption claims and policyholder premium
relief. Currently, legislation is being pursued in more than a half
a dozen states, including Massachusetts, which would mandate that
insurers provide business interruption coverage to small businesses
for COVID-19, even if this coverage would not otherwise be
applicable based on policy language.
COVID-19 did not have a material effect on our premium revenues
for the first quarter of 2020. Early in the second quarter of 2020,
the Company announced the Safety Personal Auto Relief Credit, a 15%
policyholder credit applied to each personal auto policy for the
months of April and May. Although the pandemic has resulted in
fewer cars on the road, there was not a material impact to loss and
loss adjustment expenses incurred during the three months ended
March 31, 2020.
Net loss for the quarter ended March 31, 2020 was $2.0 million,
or $0.13 per diluted share, compared to net income of $29.9
million, or $1.95 per diluted share, for the comparable 2019
period. The decrease is driven by the change in unrealized gains
and losses on equity investments. For the quarter ended March 31,
2020, a decrease of $30.0 million for the change in unrealized
gains on equity investments was recognized within (loss) income
before income taxes, compared to an increase of $11.8 million
recognized in the comparable 2019 period. Non-generally accepted
accounting principles (“non-GAAP”) operating income, as defined
below, for the quarter ended March 31, 2020 was $1.57 per diluted
share, compared to $1.36 per diluted share, for the comparable 2019
period.
Safety’s book value per share decreased to $49.78 at March 31,
2020 from $52.55 at December 31, 2019, primarily due to changes in
accumulated other comprehensive income, dividends paid to
shareholders and the purchase of treasury shares during the
quarter. During the three months ended March 31, 2020, the Company
purchased 143,292 shares on the open market under the previously
disclosed program at a cost of $10.4 million, or an average cost of
$72.93 per share. Safety paid $0.90 per share in dividends to
investors during the quarter ended March 31, 2020 compared to $0.80
per share in dividends to investors during the quarter ended March
31, 2019. Safety paid $3.40 per share in dividends to investors
during the year ended December 31, 2019.
Direct written premiums for the quarter ended March 31, 2020
decreased by $6.1 million, or 3.0%, to $197.3 million from $203.4
million for the comparable 2019 period. The decrease is primarily
in our commercial automobile line of business and is a result of
changes made by Commonwealth Automobile Reinsurers (“CAR”) to
eligibility requirements which impacted the number of policies that
we handle as a Servicing Carrier to the ceded pool. This resulted
in a commensurate decrease in ceded written premium to and assumed
from these programs. Net written premiums for the quarter ended
March 31, 2020 decreased by $1.0 million, or 0.5%, to $188.9
million from $189.9 million for the comparable 2019 period. Net
earned premiums for the quarter ended March 31, 2020 increased by
$3.3 million, or 1.8%, to $197.8 million from $194.5 million for
the comparable 2019 period.
For the quarter ended March 31, 2020, loss and loss adjustment
expenses incurred decreased by $5.3 million, or 4.2%, to $120.7
million from $126.0 million for the comparable 2019 period. The
decrease is primarily due to favorable winter weather related
activity in 2020. Loss, expense, and combined ratios for the
quarter ended March 31, 2020 were 61.0%, 31.9%, and 92.9%,
respectively, compared to 64.8%, 31.1%, and 95.9%, respectively,
for the comparable 2019 period. Total prior year favorable
development included in the pre-tax results for the quarter ended
March 31, 2020 was $9.6 million compared to $12.0 million for the
comparable 2019 period.
Net investment income for the quarter ended March 31, 2020
decreased by $1.1 million, or 8.9%, to $10.7 million from $11.8
million for the comparable 2019 period. The decrease is a result of
fixed maturity amortization resulting from prepayment activity on
certain residential mortgage-backed securities. Net effective
annualized yield on the investment portfolio for the quarter ended
March 31, 2020 was 3.1% compared to 3.5% for the comparable 2019
period. Our duration was 3.2 years at March 31, 2020 compared to
3.3 years at December 31, 2019.
On March 17, 2020, the Company borrowed $30.0 million from the
FHLB-Boston out of an abundance of caution due to market
uncertainty caused by COVID-19. The cash is still held at March 31,
2020 and is presented as an offset to the Other Liabilities
financial statement line-item, which represents outstanding claim
checks.
Today, our Board of Directors approved and declared a $0.90 per
share quarterly cash dividend on its issued and outstanding common
stock, payable on June 15, 2020 to shareholders of record at the
close of business on June 1, 2020.
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 non-GAAP operating income per
diluted share consist of our GAAP net income adjusted by the net
realized losses on investments, net impairment losses on
investments, changes in net unrealized gains on equity investments,
credit loss expense and taxes related thereto. For the quarter
ended March 31, 2020, a decrease of $30.0 million for the change in
unrealized gains on equity investments was recognized within (loss)
income before income taxes, compared to an increase of $11.8
million recognized in the comparable 2019 period. Net (loss) income
and (loss) 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, 2019 Form
10-K with the SEC on February 28, 2020 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;
- 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;
- The effects of emerging claim and coverage issues on the
Company’s business are uncertain, and court decisions or
legislative or regulatory changes that take place after the Company
issues its policies, including those taken in response to COVID-19
(such as requiring insurers to cover business interruption claims
irrespective of terms or other conditions included in the policies
that would otherwise preclude coverage), can result in an
unexpected increase in the number of claims and have a material
adverse impact on the Company's results of operations;
- The impact of COVID-19 and related risks, including on the
Company's employees, agents or other key partners, could materially
affect the Company's results of operations, financial position
and/or liquidity; 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, 2019 filed with the SEC on February 28, 2020.
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)
March 31,
December 31,
2020
2019
(Unaudited)
Assets
Investments:
Fixed maturities, available for sale, at
fair value (amortized cost: $1,159,859 and $1,192,357, allowance
for expected credit losses of $2,510 at March 31, 2020)
$
1,165,455
$
1,228,040
Equity securities, at fair value (cost:
$153,359 and $151,121)
149,888
177,637
Other invested assets
41,881
37,278
Total investments
1,357,224
1,442,955
Cash and cash equivalents
41,567
44,407
Accounts receivable, net of allowance for
credit losses of $334 at March 31, 2020
189,671
193,369
Receivable for securities sold
1,067
1,784
Accrued investment income
9,152
8,404
Taxes recoverable
—
1,003
Receivable from reinsurers related to paid
loss and loss adjustment expenses
14,039
11,319
Receivable from reinsurers related to
unpaid loss and loss adjustment expenses
121,337
122,372
Ceded unearned premiums
30,191
35,182
Deferred policy acquisition costs
72,132
74,287
Deferred income taxes
6,001
—
Equity and deposits in pools
30,004
29,791
Operating lease right-of-use-assets
34,256
33,998
Other assets
24,078
23,798
Total assets
$
1,930,719
$
2,022,669
Liabilities
Loss and loss adjustment expense
reserves
$
608,693
$
610,566
Unearned premium reserves
428,291
442,219
Accounts payable and accrued
liabilities
55,911
75,016
Payable for securities purchased
4,343
6,377
Payable to reinsurers
2,446
12,911
Deferred income taxes
—
5,717
Taxes payable
543
—
Debt
30,000
—
Operating lease liabilities
34,256
33,998
Other liabilities
4,127
27,459
Total liabilities
1,168,610
1,214,263
Shareholders’ equity
Common stock: $0.01 par value; 30,000,000
shares authorized; 17,732,359 and 17,662,779 shares issued
177
177
Additional paid-in capital
204,064
202,321
Accumulated other comprehensive income,
net of taxes
6,404
28,190
Retained earnings
645,691
661,553
Treasury stock, at cost: 2,422,862 and
2,279,570 shares
(94,227)
(83,835)
Total shareholders’ equity
762,109
808,406
Total liabilities and shareholders’
equity
$
1,930,719
$
2,022,669
Safety Insurance Group, Inc.
and Subsidiaries
Consolidated Statements of
Operations
(Unaudited)
(Dollars in thousands, except
share and per share data)
Three Months Ended March
31,
2020
2019
Net earned premiums
$
197,895
$
194,491
Net investment income
10,710
11,751
Earnings from partnership investments
1,339
835
Net realized losses on investments
(631)
(164)
Change in net unrealized gains on equity
investments
(29,988)
11,801
Net impairment losses on investments
(a)
—
(220)
Credit loss expense
(2,510)
—
Finance and other service income
4,229
4,085
Total revenue
181,044
222,579
Losses and loss adjustment expenses
120,746
126,027
Underwriting, operating and related
expenses
63,082
60,434
Interest expense
47
22
Total expenses
183,875
186,483
(Loss) income before income taxes
(2,831)
36,096
Income tax (benefit) expense
(841)
6,150
Net (loss) income
$
(1,990)
$
29,946
(Loss) earnings per weighted average
common share:
Basic
$
(0.13)
$
1.97
Diluted
$
(0.13)
$
1.95
Cash dividends paid per common
share
$
0.90
$
0.80
Number of shares used in computing
earnings per share:
Basic
15,230,784
15,140,804
Diluted
15,347,083
15,305,785
(a) No portion of the other-than-temporary
impairments recognized in the period indicated were included in
Other Comprehensive Income for the period ended March 31, 2019.
Reconciliation of Net (Loss) Income to
Non-GAAP Operating Income
Net (loss) income
$
(1,990)
$
29,946
Exclusions from net (loss) income:
Net realized losses on investments
631
164
Change in net unrealized gains on equity
investments
29,988
(11,801)
Net impairment losses on investments
-
220
Credit loss expense
2,510
-
Income tax (benefit) expense on exclusions
from net income
(6,957)
2,398
Non-GAAP operating income
$
24,182
$
20,927
Net (loss) income per diluted
share
$
(0.13)
$
1.95
Exclusions from net (loss) income:
Net realized losses on investments
0.04
0.01
Change in net unrealized gains on equity
investments
1.95
(0.77)
Net impairment losses on investments
-
0.01
Credit loss expense
0.16
-
Income tax (benefit) expense on exclusions
from net income
(0.45)
0.16
Non-GAAP operating income per diluted
share
$
1.57
$
1.36
Safety Insurance Group, Inc.
and Subsidiaries
Additional Premium
Information
(Unaudited)
(Dollars in thousands)
Three Months Ended March
31,
2020
2019
Written Premiums
Direct
$
197,346
$
203,387
Assumed
7,978
8,245
Ceded
(16,366)
(21,694)
Net written premiums
$
188,958
$
189,938
Earned Premiums
Direct
$
210,151
$
207,308
Assumed
9,102
9,315
Ceded
(21,358)
(22,132)
Net earned premiums
$
197,895
$
194,491
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200506005999/en/
Safety Insurance Group, Inc. Office of Investor Relations
877-951-2522 InvestorRelations@SafetyInsurance.com
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