Safety Insurance Group, Inc. (NASDAQ:SAFT) (“the Company”) today
reported second quarter 2020 results. Net income for the quarter
ended June 30, 2020 was $42.5 million, or $2.78 per diluted share,
compared to net income of $25.9 million, or $1.68 per diluted
share, for the comparable 2019 period. Net income for the six
months ended June 30, 2020 was $40.5 million, or $2.64 per diluted
share, compared to net income of $55.9 million, or $3.63 per
diluted share, for the comparable 2019 period. Non-generally
accepted accounting principles (“non-GAAP”) operating income, as
defined below, for the quarter ended June 30, 2020 was $1.95 per
diluted share, compared to $1.47 per diluted share, for the
comparable 2019 period. Non-GAAP operating income for the six
months ended June 30, 2020 was $3.52 per diluted share, compared to
$2.83 per diluted share, for the comparable 2019 period.
Safety’s book value per share increased to $53.95 at June 30,
2020 from $52.55 at December 31, 2019, primarily as a result of net
income and an increase in unrealized gains, partially offset by
dividends paid and the purchase of treasury shares during the six
months ended June 30, 2020. During the three and six months ended
June 30, 2020 the Company purchased 158,552 and 301,844 shares,
respectively, on the open market at a cost of $11.8 million and
$22.1 million, respectively. Safety paid $0.90 per share in
dividends to investors during the quarter ended June 30, 2020
compared to $0.80 per share in dividends to investors during the
quarter ended June 30, 2019. Safety paid $3.40 per share during the
year ended December 31, 2019.
During this challenging time, the Company has continued to take
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.
During the second quarter of 2020, the Company announced the
Safety Personal Auto Relief Credit, a 15% policyholder credit,
representing $17.7 million in total premium which was applied to
personal auto policies for the months of April, May and June. This
entire activity was booked as an adjustment to premiums during the
second quarter of 2020. Additionally, as part of our efforts to
assist policyholders, the Company instituted a moratorium on policy
cancellations and assessment of various fees during the three
months ended June 30, 2020 which resulted in a decrease in finance
and other service income of $0.8 million to $3.3 million from $4.1
million for the comparable 2019 period.
Direct written premiums for the quarter ended June 30, 2020
decreased by $28.3 million, or 12.1%, to $205.3 million from $233.6
million for the comparable 2019 period. Direct written premiums for
the six months ended June 30, 2020 decreased by $34.4 million, or
7.9% to $402.6 million from $437.0 million for the comparable 2019
period. The 2020 decrease reflects the personal auto premium relief
as described above. In addition, the decrease is also attributable
to 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 June 30, 2020
decreased by $19.6 million, or 9.0%, to $197.7 million from $217.3
million for the comparable 2019 period. Net written premiums for
the six months ended June 30, 2020 decreased by $20.6 million, or
5.0%, to $386.6 million from $407.2 million for the comparable 2019
period. Net earned premiums for the quarter ended June 30, 2020
decreased by $14.5 million, or 7.4%, to $181.9 million from $196.4
million for the comparable 2019 period. Net earned premiums for the
six months ended June 30, 2020 decreased by $11.2 million, or 2.8%,
to $379.7 million from $390.9 million for the comparable 2019
period. The decreases in both periods are a result of the premium
relief as described above.
The pandemic has resulted in fewer cars on the road, resulting
in a decrease in frequency, primarily in our private passenger
automobile line of business. As a result, for the quarter ended
June 30, 2020, loss and loss adjustment expenses incurred decreased
by $31.4 million, or 25.7%, to $91.0 million from $122.4 million
for the comparable 2019 period. For the six months ended June 30,
2020, loss and loss adjustment expenses incurred decreased by $36.7
million, or 14.8%, to $211.7 million from $248.4 million for the
comparable 2019 period. Loss, expense, and combined ratios
calculated under U.S. generally accepted accounting principles for
the quarter ended June 30, 2020 were 50.0%, 34.9%, and 84.9%,
respectively, compared to 62.3%, 31.0%, and 93.3%, respectively,
for the comparable 2019 period. Loss, expense, and combined ratios
calculated under U.S. generally accepted accounting principles for
the six months ended June 30, 2020 were 55.7%, 33.3%, and 89.0%,
respectively, compared to 63.5%, 31.0%, and 94.5%, respectively,
for the comparable 2019 period. Total prior year favorable
development included in the pre-tax results for the quarter ended
June 30, 2020 was $9.7 million compared to $10.4 million for the
comparable 2019 period. Total prior year favorable development
included in the pre-tax results for the six months ended June 30,
2020 was $19.3 million compared to $22.3 million for the comparable
2019 period.
The increase in the expense ratios in the respective periods is
partially driven by costs associated with various system
modernization in our claims, billing and underwriting areas, a
reduction in certain expense allowances offered under the Servicing
Carrier program that have decreased with the related written
premium as noted above and an increase in contingent commission
expense. Furthermore, the loss, expense and combined ratios in both
periods reflect a lower earned premium base in their respective
ratio calculations due to the premium relief efforts noted
above.
Net investment income for the quarter ended June 30, 2020
decreased by $0.7 million, or 6.2%, to $9.9 million from $10.6
million for the comparable 2019 period. Net investment income for
the six months ended June 30, 2020 decreased by $1.7 million, or
7.6%, to $20.6 million from $22.3 million for the comparable 2019
period. The decrease in net investment income for the quarter ended
June 30, 2020 is a result of lower yields on our fixed maturities,
specifically bank loans, as well as a decrease in interest income
on our partnership investments. The decrease for the six months
ended June 30, 2020 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 June 30, 2020 was 2.9%
compared to 3.2% for the comparable 2019 period. Net effective
annualized yield on the investment portfolio for the six months
ended June 30, 2020 was 3.0% compared to 3.3% for the comparable
2019 period. Our duration on fixed maturities was 3.3 years at June
30, 2020 and December 31, 2019.
On August 5, 2020, our Board of Directors approved a $0.90 per
share quarterly cash dividend on its issued and outstanding common
stock payable on September 15, 2020 to shareholders of record at
the close of business on September 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) gains on investments,
net impairment losses on investments, change in net unrealized
gains on equity investments, credit loss expense and taxes related
thereto. For the quarter ended June 30, 2020, an increase of $16.8
million for the change in unrealized gains on equity securities was
recognized within income before income taxes, compared to $3.8
million recognized in the comparable 2019 period. For the six
months ended June 30, 2020, a decrease of $13.2 million for the
change in unrealized gains on equity securities was recognized in
income before income taxes, compared to an increase of $15.6
million recognized in the comparable 2019 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, 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)
June 30,
December 31,
2020
2019
(Unaudited)
Assets
Investments:
Fixed maturities, available for sale, at
fair value (amortized cost: $1,168,666 and $1,192,357, allowance
for expected credit losses of $2,471 at June 30, 2020)
$
1,219,714
$
1,228,040
Equity securities, at fair value (cost:
$164,991 and $151,121)
178,347
177,637
Other invested assets
35,526
37,278
Total investments
1,433,587
1,442,955
Cash and cash equivalents
44,757
44,407
Accounts receivable, net of allowance for
credit losses of $914 at June 30, 2020
199,356
193,369
Receivable for securities sold
2,523
1,784
Accrued investment income
8,000
8,404
Taxes recoverable
411
1,003
Receivable from reinsurers related to paid
loss and loss adjustment expenses
16,018
11,319
Receivable from reinsurers related to
unpaid loss and loss adjustment expenses
116,378
122,372
Ceded unearned premiums
26,073
35,182
Deferred policy acquisition costs
77,350
74,287
Equity and deposits in pools
34,118
29,791
Operating lease right-of-use-assets
33,092
33,998
Other assets
27,251
23,798
Total assets
$
2,018,914
$
2,022,669
Liabilities
Loss and loss adjustment expense
reserves
$
599,747
$
610,566
Unearned premium reserves
440,007
442,219
Accounts payable and accrued
liabilities
60,518
75,016
Payable for securities purchased
7,451
6,377
Payable to reinsurers
11,794
12,911
Deferred income taxes
4,413
5,717
Debt
30,000
—
Operating lease liabilities
33,092
33,998
Other liabilities
14,914
27,459
Total liabilities
1,201,936
1,214,263
Shareholders’ equity
Common stock: $0.01 par value; 30,000,000
shares authorized; 17,724,866 and 17,662,779 shares issued
177
177
Additional paid-in capital
206,130
202,321
Accumulated other comprehensive income,
net of taxes
42,302
28,190
Retained earnings
674,349
661,553
Treasury stock, at cost: 2,581,414 and
2,279,570 shares
(105,980
)
(83,835
)
Total shareholders’ equity
816,978
808,406
Total liabilities and shareholders’
equity
$
2,018,914
$
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 June
30,
Six Months Ended June
30,
2020
2019
2020
2019
Net earned premiums
$
181,902
$
196,426
$
379,797
$
390,917
Net investment income
9,916
10,574
20,626
22,325
(Losses) earnings from partnership
investments
(3,449
)
735
(2,110
)
1,570
Net realized (losses) gains on
investments
(721
)
483
(1,352
)
319
Change in net unrealized gains on equity
investments
16,828
3,754
(13,160
)
15,555
Net impairment losses on investments
(a)
—
(54
)
—
(274
)
Credit loss expense
39
—
(2,471
)
—
Finance and other service income
3,255
4,084
7,484
8,169
Total revenue
207,770
216,002
388,814
438,581
Losses and loss adjustment expenses
90,974
122,393
211,720
248,420
Underwriting, operating and related
expenses
63,514
60,908
126,596
121,342
Interest expense
130
23
177
45
Total expenses
154,618
183,324
338,493
369,807
Income before income taxes
53,152
32,678
50,321
68,774
Income tax expense
10,658
6,744
9,817
12,894
Net income
$
42,494
$
25,934
$
40,504
$
55,880
Earnings per weighted average common
share:
Basic
$
2.80
$
1.70
$
2.66
$
3.66
Diluted
$
2.78
$
1.68
$
2.64
$
3.63
Cash dividends paid per common
share
$
0.90
$
0.80
$
1.80
$
1.60
Number of shares used in computing
earnings per share:
Basic
15,120,039
15,220,822
15,175,409
15,181,034
Diluted
15,237,295
15,346,234
15,292,186
15,326,121
(a) No portion of the other-than-temporary
impairments recognized in the period indicated were included in
Other Comprehensive Income for the period ended June 30, 2019.
Reconciliation of Net Income to
Non-GAAP Operating Income
Net income
$
42,494
$
25,934
$
40,504
$
55,880
Exclusions from net income:
Net realized losses (gains) on
investments
721
(483
)
1,352
(319
)
Change in net unrealized gains on equity
investments
(16,828
)
(3,754
)
13,160
(15,555
)
Net impairment losses on investments
-
54
-
274
Credit loss expense
(39
)
-
2,471
-
Income tax expense (benefit) on exclusions
from net income
3,391
878
(3,566
)
3,276
Non-GAAP operating income
$
29,739
$
22,629
$
53,921
$
43,556
Net income per diluted share
$
2.78
$
1.68
$
2.64
$
3.63
Exclusions from net income:
Net realized losses (gains) on
investments
0.05
(0.03
)
0.09
(0.02
)
Change in net unrealized gains on equity
investments
(1.10
)
(0.24
)
0.86
(1.01
)
Net impairment losses on investments
-
-
-
0.02
Credit loss expense
-
-
0.16
-
Income tax expense (benefit) on exclusions
from net income
0.22
0.06
(0.23
)
0.21
Non-GAAP operating income per diluted
share
$
1.95
$
1.47
$
3.52
$
2.83
Safety Insurance Group, Inc.
and Subsidiaries
Additional Premium
Information
(Unaudited)
(Dollars in thousands)
Three Months Ended June
30,
Six Months Ended June
30,
2020
2019
2020
2019
Written Premiums
Direct
$
205,301
$
233,595
$
402,647
$
436,982
Assumed
7,128
8,175
15,106
16,420
Ceded
(14,693
)
(24,485
)
(31,059
)
(46,179
)
Net written premiums
$
197,736
$
217,285
$
386,694
$
407,223
Earned Premiums
Direct
$
192,945
$
210,334
$
403,096
$
417,642
Assumed
7,767
8,213
16,869
17,528
Ceded
(18,810
)
(22,121
)
(40,168
)
(44,253
)
Net earned premiums
$
181,902
$
196,426
$
379,797
$
390,917
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200805005937/en/
Safety Insurance Group, Inc. Office of Investor Relations
877-951-2522 InvestorRelations@SafetyInsurance.com
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