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

 

 

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