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

 

 

Safety Insurance Group, Inc. Office of Investor Relations 877-951-2522 InvestorRelations@SafetyInsurance.com