Safety Insurance Group, Inc. (NASDAQ:SAFT) today reported second
quarter 2018 results. Net income for the quarter ended
June 30, 2018 was $26.8 million, or $1.75 per diluted share,
compared to net income of $21.1 million, or $1.39 per diluted
share, for the comparable 2017 period. Net income for the six
months ended June 30, 2018 was $35.9 million, or $2.35 per
diluted share, compared to net income of $33.1 million, or $2.18
per diluted share, for the comparable 2017 period. Non-generally
accepted accounting principles (“non-GAAP”) operating income, as
defined below, for the quarter ended June 30, 2018 was $1.81
per diluted share, compared to $1.37 per diluted share, for the
comparable 2017 period. Non-GAAP operating income for the six
months ended June 30, 2018 was $2.52 per diluted share,
compared to $2.09 per diluted share, for the comparable 2017 period
due to a decline in net unrealized gains. Safety’s book value per
share decreased to $45.56 at June 30, 2018 from $46.06 at
December 31, 2017. Safety paid $0.80 and $0.70 per share in
dividends to investors during the quarters ended June 30, 2018
and 2017, respectively. Safety paid $3.00 per share in dividends to
investors during the year ended December 31, 2017.
Direct written premiums for the quarter ended June 30, 2018
increased by $6.0 million, or 2.6%, to $233.0 million from $227.0
million for the comparable 2017 period. Direct written premiums for
the six months ended June 30, 2018 increased by $10.1 million,
or 2.4%, to $436.8 million from $426.7 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 June 30, 2018
increased by $1.7 million, or 0.8%, to $215.5 million from $213.8
million for the comparable 2017 period. Net written premiums for
the six months ended June 30, 2018 increased by $0.8 million,
or 0.2%, to $405.5 million from $404.7 million for the comparable
2017 period. Net earned premiums for the quarter ended
June 30, 2018 increased by $1.3 million, or 0.7%, to $194.1
million from $192.8 million for the comparable 2017 period. Net
earned premiums for the six months ended June 30, 2018
increased by $3.6 million, or 0.9%, to $386.1 million from $382.5
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 June 30, 2018, loss and loss
adjustment expenses incurred decreased by $3.8 million, or 3.3%, to
$113.2 million from $117.0 million for the comparable 2017 period.
For the six months ended June 30, 2018, loss and loss
adjustment expenses incurred increased by $5.4 million, or 2.2%, to
$250.9 million from $245.5 million for the comparable 2017 period.
Loss, expense, and combined ratios calculated under U.S. generally
accepted accounting principles for the quarter ended June 30,
2018 were 58.3%, 31.7%, and 90.0%, respectively, compared to 60.7%,
31.6%, and 92.3%, respectively, for the comparable 2017 period.
Loss, expense, and combined ratios calculated under U.S. generally
accepted accounting principles for the six months ended
June 30, 2018 were 65.0%, 31.7%, and 96.7%, respectively,
compared to 64.2%, 31.5%, and 95.7%, respectively, for the
comparable 2017 period. Total prior year favorable development
included in the pre-tax results for the quarter ended June 30,
2018 was $12.1 million compared to $10.0 million for the comparable
2017 period. Total prior year favorable development included in the
pre-tax results for the six months ended June 30, 2018 was
$26.3 million compared to $20.4 million for the comparable 2017
period.
Net investment income for the quarter ended June 30, 2018
increased by $0.5 million, or 4.9%, to $10.2 million from $9.7
million for the comparable 2017 period. Net investment income for
the six months ended June 30, 2018 increased by $1.9 million,
or 10.1%, to $20.7 million from $18.8 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 June 30, 2018 was
3.2% compared to 3.1% for the comparable 2017 period. Net effective
annualized yield on the investment portfolio for the six months
ended June 30, 2018 was 3.2% compared to 3.0% for the
comparable 2017 period. Our duration was 3.9 years at June 30,
2018 compared to 3.7 years at 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 September 14, 2018 to shareholders of record at the
close of business on September 4, 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 June 30, 2018, a decrease of $2.7 million for
the change in unrealized gains was recognized within income before
income taxes and the income tax expense was reduced by $0.6
million. For the six months ended June 30, 2018, a decrease of $6.2
million for the change in unrealized gains was recognized within
income before income taxes and the income tax expense was reduced
by $1.3 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)
June 30, December 31,
2018 2017 (Unaudited) Assets
Investments: Fixed maturities, available for sale, at fair value
(amortized cost: $1,153,613 and $1,156,697)
$
1,145,335 $ 1,172,026 Equity securities, at fair value
(cost: $119,571 and $90,481)
134,764 111,867 Other invested
assets
23,074 23,162 Total
investments
1,303,173 1,307,055 Cash and cash equivalents
18,722 41,708 Accounts receivable, net of allowance for
doubtful accounts
209,468 190,649 Receivable for securities
sold
2,673 1,380 Accrued investment income
8,847
8,876 Taxes recoverable
2,735 908 Receivable from reinsurers
related to paid loss and loss adjustment expenses
24,073
24,776 Receivable from reinsurers related to unpaid loss and loss
adjustment expenses
96,577 83,085 Ceded unearned premiums
36,950 32,175 Deferred policy acquisition costs
75,223 72,202 Deferred income taxes
2,307 — Equity
and deposits in pools
29,699 28,246 Other assets
19,879 16,219
Total assets
$ 1,830,326 $ 1,807,279
Liabilities Loss and loss adjustment expense reserves
$ 579,791 $ 574,054 Unearned premium reserves
452,402 428,257 Accounts payable and accrued liabilities
53,269 60,701 Payable for securities purchased
7,226
4,188 Payable to reinsurers
22,361 13,801 Deferred income
taxes
— 2,917 Other liabilities
18,809
22,345
Total liabilities
1,133,858 1,106,263
Shareholders’ equity Common stock: $0.01 par value;
30,000,000 shares authorized; 17,566,461 and 17,499,544 shares
issued
176 175 Additional paid-in capital
192,495
189,714 Accumulated other comprehensive (loss) income, net of taxes
(6,540 ) 24,269 Retained earnings
594,172
570,693 Treasury stock, at cost: 2,279,570 shares
(83,835 ) (83,835 )
Total shareholders’
equity 696,468 701,016
Total liabilities and shareholders’ equity $
1,830,326 $ 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 June 30, Six
Months Ended June 30, 2018 2017
2018 2017 Net earned premiums
$
194,125 $ 192,824
$ 386,158 $ 382,535 Net
investment income
10,188 9,715
20,719 18,810 Earnings
from partnership investments
487 769
5,351 882 Net
realized gains on investments
1,589 567
2,895 2,109
Change in net unrealized gains on equity investments
(2,711
) —
(6,193 ) — Finance and other service
income
4,292 4,374
8,759 8,683 Total revenue
207,970 208,249
417,689
413,019 Losses and loss adjustment
expenses
113,227 117,049
250,871 245,479
Underwriting, operating and related expenses
61,573 60,979
122,429 120,649 Interest expense
23
23
45 45 Total
expenses
174,823 178,051
373,345 366,173 Income before
income taxes
33,147 30,198
44,344 46,846 Income tax
expense
6,331 9,093
8,403 13,722
Net income $
26,816 $ 21,105
$ 35,941
$ 33,124
Earnings per weighted average common
share: Basic
$ 1.77 $ 1.40
$
2.37 $ 2.19 Diluted
$ 1.75
$ 1.39
$ 2.35 $ 2.18
Cash dividends paid per common share $
0.80 $ 0.70
$ 1.60 $ 1.40
Number of shares used in computing earnings per
share: Basic
15,090,435 15,020,028
15,068,321 15,000,127
Diluted
15,213,414 15,114,284
15,202,338 15,105,554
Reconciliation of Net Income to Non-GAAP Operating
Income Net income $ 26,816 $ 21,105
$ 35,941 $ 33,124 Exclusions from net income:
Net realized gains on investments
(1,589 ) (567 )
(2,895 ) (2,109 ) Change in net unrealized gains on
equity investments
2,711 -
6,193 - Income tax
(expense) benefit
(236 ) 198
(693
) 738
Non-GAAP operating income $
27,702 $ 20,736
$ 38,546
$ 31,753
Net income per diluted share
$ 1.75 $ 1.39
$ 2.35 $ 2.18 Exclusions
from net income: Net realized gains on investments
(0.10
) (0.04 )
(0.19 ) (0.14 ) Change in net
unrealized gains on equity investments
0.18 -
0.41 -
Income tax (expense) benefit
(0.02 ) 0.02
(0.05 ) 0.05
Non-GAAP operating income per
diluted share $ 1.81 $ 1.37
$ 2.52 $ 2.09
Safety Insurance Group, Inc. and
Subsidiaries
Additional Premium Information
(Unaudited)
(Dollars in thousands)
Three Months Ended June 30,
Six Months Ended June 30, 2018 2017
2018 2017 Written Premiums Direct
$ 233,050 $ 227,048
$ 436,783 $ 426,714
Assumed
8,297 8,443
16,245 17,035 Ceded
(25,832 ) (21,675 )
(47,500
) (39,063 ) Net written premiums
$
215,515 $ 213,816
$ 405,528
$ 404,686
Earned Premiums Direct
$ 208,297 $ 203,785
$ 412,116 $ 403,039
Assumed
7,880 7,986
16,767 16,712 Ceded
(22,052 ) (18,947 )
(42,725
) (37,216 ) Net earned premiums
$
194,125 $ 192,824
$ 386,158
$ 382,535
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version on businesswire.com: https://www.businesswire.com/news/home/20180801005867/en/
Safety Insurance Group, Inc.Office of Investor
Relations877-951-2522InvestorRelations@SafetyInsurance.com
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