Safety Insurance Group, Inc. (NASDAQ:SAFT) (“the Company”) today reported third quarter 2020 results. Net income for the quarter ended September 30, 2020 was $44.7 million, or $2.96 per diluted share, compared to net income of $15.6 million, or $1.01 per diluted share, for the comparable 2019 period. Net income for the nine months ended September 30, 2020 was $85.2 million, or $5.58 per diluted share, compared to net income of $71.5 million, or $4.64 per diluted share, for the comparable 2019 period. Non-generally accepted accounting principles (“non-GAAP”) operating income, as defined below, for the quarter ended September 30, 2020 was $2.53 per diluted share, compared to $0.98 per diluted share, for the comparable 2019 period. Non-GAAP operating income for the nine months ended September 30, 2020 was $6.02 per diluted share, compared to $3.80 per diluted share, for the comparable 2019 period.

Safety’s book value per share increased to $56.26 at September 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 nine months ended September 30, 2020. During the three and nine months ended September 30, 2020 the Company purchased 249,754 and 551,598 shares, respectively, on the open market at a cost of $17.9 million and $40.0 million, respectively. Safety paid $0.90 per share in dividends to investors during each of the quarters ended September 30, 2020 and 2019, respectively. Safety paid $3.40 per share in dividends to investors during the year ended December 31, 2019.

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. 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.

Direct written premiums for the quarter ended September 30, 2020 decreased by $12.3 million, or 5.5%, to $213.4 million from $225.7 million for the comparable 2019 period. Direct written premiums for the nine months ended September 30, 2020 decreased by $46.6 million, or 7.0% to $616.1 million from $662.7 million for the comparable 2019 period. The 2020 decrease is 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. The decrease for the nine months ended September 30, 2020 also reflects 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.

Net written premiums for the quarter ended September 30, 2020 decreased by $5.9 million, or 2.8%, to $205.7 million from $211.6 million for the comparable 2019 period. Net written premiums for the nine months ended September 30, 2020 decreased by $26.3 million, or 4.3%, to $592.5 million from $618.8 million for the comparable 2019 period. Net earned premiums for the quarter ended September 30, 2020 decreased by $3.6 million, or 1.8%, to $194.8 million from $198.4 million for the comparable 2019 period. Net earned premiums for the nine months ended September 30, 2020 decreased by $14.6 million, or 2.5%, to $574.7 million from $589.3 million for the comparable 2019 period. The decreases in both periods are a result of the decrease in direct written premiums as described above.

The pandemic has resulted in fewer cars on the road, resulting in a decrease in frequency of claims, primarily in our private passenger automobile line of business. As a result, for the quarter ended September 30, 2020, loss and loss adjustment expenses incurred decreased by $37.9 million, or 28.1%, to $97.1 million from $135.0 million for the comparable 2019 period. For the nine months ended September 30, 2020, loss and loss adjustment expenses incurred decreased by $74.6 million, or 19.5%, to $308.8 million from $383.4 million for the comparable 2019 period. Loss, expense, and combined ratios calculated under U.S. generally accepted accounting principles for the quarter ended September 30, 2020 were 49.8%, 35.2%, and 85.0%, respectively, compared to 68.0%, 30.7%, and 98.7%, respectively, for the comparable 2019 period. Loss, expense, and combined ratios calculated under U.S. generally accepted accounting principles for the nine months ended September 30, 2020 were 53.7%, 34.0%, and 87.7%, respectively, compared to 65.1%, 30.9%, and 96.0%, respectively, for the comparable 2019 period. Total prior year favorable development included in the pre-tax results for the quarter ended September 30, 2020 was $15.3 million compared to $3.2 million for the comparable 2019 period. The prior year favorable development for the three months ended September 30, 2019 reflects adverse development on a settlement involving a liability claim that sought to recover extra-contractual damages against one of our personal umbrella policyholders. Total prior year favorable development included in the pre-tax results for the nine months ended September 30, 2020 was $34.6 million compared to $25.5 million for the comparable 2019 period.

The increase in the expense ratios in the respective periods is driven by an increase in contingent commission expense as well as costs associated with various system modernization in our claims, billing and underwriting areas and a reduction in certain expense allowances offered under the Servicing Carrier program that have decreased with the related written premium as noted above.

Net investment income for the quarter ended September 30, 2020 decreased by $2.2 million, or 18.7%, to $9.7 million from $11.9 million for the comparable 2019 period. Net investment income for the nine months ended September 30, 2020 decreased by $4.0 million, or 11.5%, to $30.3 million from $34.3 million for the comparable 2019 period. The decreases in both periods is a result of lower floating yields on our bank loan portfolio, lower interest income on our partnership investments and 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 September 30, 2020 was 2.8% compared to 3.5% for the comparable 2019 period. Net effective annualized yield on the investment portfolio for the nine months ended September 30, 2020 was 2.9% compared to 3.4% for the comparable 2019 period. Our duration on fixed maturities was 3.2 years at September 30, 2020 compared to 3.3 years at December 31, 2019.

On November 4, 2020, our Board of Directors approved a $0.90 per share quarterly cash dividend on its issued and outstanding common stock payable on December 15, 2020 to shareholders of record at the close of business on December 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 gains (losses) on investments, net impairment losses on investments, change in net unrealized gains on equity investments, credit loss benefit (expense) and taxes related thereto. For the quarter ended September 30, 2020, an increase of $7.5 million for the change in unrealized gains on equity securities was recognized within income before income taxes, compared to a decrease of $0.4 million recognized in the comparable 2019 period. For the nine months ended September 30, 2020, a decrease of $5.6 million for the change in unrealized gains on equity securities was recognized in income before income taxes, compared to an increase of $15.2 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)

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

2020

 

2019

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

Fixed maturities, available for sale, at fair value (amortized cost: $1,166,780 and $1,192,357, allowance for expected credit losses of $2,289 at September 30, 2020)

 

$

1,225,157

 

 

$

1,228,040

 

Equity securities, at fair value (cost: $171,363 and $151,121)

 

 

192,240

 

 

 

177,637

 

Other invested assets

 

 

42,603

 

 

 

37,278

 

Total investments

 

 

1,460,000

 

 

 

1,442,955

 

Cash and cash equivalents

 

 

59,749

 

 

 

44,407

 

Accounts receivable, net of allowance for credit losses of $959 at September 30, 2020

 

 

193,967

 

 

 

193,369

 

Receivable for securities sold

 

 

862

 

 

 

1,784

 

Accrued investment income

 

 

9,144

 

 

 

8,404

 

Taxes recoverable

 

 

 

 

 

1,003

 

Receivable from reinsurers related to paid loss and loss adjustment expenses

 

 

17,880

 

 

 

11,319

 

Receivable from reinsurers related to unpaid loss and loss adjustment expenses

 

 

107,783

 

 

 

122,372

 

Ceded unearned premiums

 

 

22,309

 

 

 

35,182

 

Deferred policy acquisition costs

 

 

79,779

 

 

 

74,287

 

Equity and deposits in pools

 

 

37,265

 

 

 

29,791

 

Operating lease right-of-use-assets

 

 

32,004

 

 

 

33,998

 

Other assets

 

 

26,368

 

 

 

23,798

 

Total assets

 

$

2,047,110

 

 

$

2,022,669

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Loss and loss adjustment expense reserves

 

$

586,489

 

 

$

610,566

 

Unearned premium reserves

 

 

447,157

 

 

 

442,219

 

Accounts payable and accrued liabilities

 

 

71,315

 

 

 

75,016

 

Payable for securities purchased

 

 

11,756

 

 

 

6,377

 

Payable to reinsurers

 

 

19,335

 

 

 

12,911

 

Deferred income taxes

 

 

8,886

 

 

 

5,717

 

Taxes payable

 

 

160

 

 

 

 

Debt

 

 

30,000

 

 

 

 

Operating lease liabilities

 

 

32,004

 

 

 

33,998

 

Other liabilities

 

 

2,157

 

 

 

27,459

 

Total liabilities

 

 

1,209,259

 

 

 

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

 

 

178

 

 

 

177

 

Additional paid-in capital

 

 

208,113

 

 

 

202,321

 

Accumulated other comprehensive income, net of taxes

 

 

47,925

 

 

 

28,190

 

Retained earnings

 

 

705,469

 

 

 

661,553

 

Treasury stock, at cost: 2,831,168 and 2,279,570 shares

 

 

(123,834

)

 

 

(83,835

)

Total shareholders’ equity

 

 

837,851

 

 

 

808,406

 

Total liabilities and shareholders’ equity

 

$

2,047,110

 

 

$

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 September 30,

 

Nine Months Ended September 30,

 

 

2020

 

2019

 

2020

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earned premiums

 

$

194,843

 

 

$

198,410

 

 

$

574,640

 

 

$

589,327

 

Net investment income

 

 

9,718

 

 

 

11,947

 

 

 

30,344

 

 

 

34,272

 

Earnings (losses) from partnership investments

 

 

4,699

 

 

 

(139

)

 

 

2,589

 

 

 

1,431

 

Net realized gains (losses) on investments

 

 

669

 

 

 

1,194

 

 

 

(683

)

 

 

1,513

 

Change in net unrealized gains on equity investments

 

 

7,521

 

 

 

(387

)

 

 

(5,639

)

 

 

15,168

 

Net impairment losses on investments (a)

 

 

 

 

 

(123

)

 

 

 

 

 

(397

)

Credit loss benefit (expense)

 

 

182

 

 

 

 

 

 

(2,289

)

 

 

 

Finance and other service income

 

 

4,768

 

 

 

4,371

 

 

 

12,252

 

 

 

12,540

 

Total revenue

 

 

222,400

 

 

 

215,273

 

 

 

611,214

 

 

 

653,854

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Losses and loss adjustment expenses

 

 

97,054

 

 

 

134,966

 

 

 

308,774

 

 

 

383,386

 

Underwriting, operating and related expenses

 

 

68,596

 

 

 

60,845

 

 

 

195,192

 

 

 

182,187

 

Interest expense

 

 

131

 

 

 

22

 

 

 

308

 

 

 

67

 

Total expenses

 

 

165,781

 

 

 

195,833

 

 

 

504,274

 

 

 

565,640

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

56,619

 

 

 

19,440

 

 

 

106,940

 

 

 

88,214

 

Income tax expense

 

 

11,877

 

 

 

3,821

 

 

 

21,694

 

 

 

16,715

 

Net income

 

$

44,742

 

 

$

15,619

 

 

$

85,246

 

 

$

71,499

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per weighted average common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

2.99

 

 

$

1.02

 

 

$

5.62

 

 

$

4.68

 

Diluted

 

$

2.96

 

 

$

1.01

 

 

$

5.58

 

 

$

4.64

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends paid per common share

 

$

0.90

 

 

$

0.90

 

 

$

2.70

 

 

$

2.50

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of shares used in computing earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

14,907,809

 

 

 

15,220,902

 

 

 

15,085,914

 

 

 

15,194,469

 

Diluted

 

 

15,030,277

 

 

 

15,360,908

 

 

 

15,204,155

 

 

 

15,337,331

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a) No portion of the other-than-temporary impairments recognized in the period indicated were included in Other Comprehensive Income for the period ended September 30, 2019.

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Net Income to Non-GAAP Operating Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

44,742

 

 

$

15,619

 

 

$

85,246

 

 

$

71,499

 

Exclusions from net income:

 

 

 

 

 

 

 

 

 

 

 

 

Net realized (gains) losses on investments

 

 

(669

)

 

 

(1,194

)

 

 

683

 

 

 

(1,513

)

Change in net unrealized gains on equity investments

 

 

(7,521

)

 

 

387

 

 

 

5,639

 

 

 

(15,168

)

Net impairment losses on investments

 

 

-

 

 

 

123

 

 

 

-

 

 

 

397

 

Credit loss (benefit) expense

 

 

(182

)

 

 

-

 

 

 

2,289

 

 

 

-

 

Income tax expense (benefit) on exclusions from net income

 

 

1,758

 

 

 

144

 

 

 

(1,808

)

 

 

3,420

 

Non-GAAP operating income

 

$

38,128

 

 

$

15,079

 

 

$

92,049

 

 

$

58,635

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per diluted share

 

$

2.96

 

 

$

1.01

 

 

$

5.58

 

 

$

4.64

 

Exclusions from net income:

 

 

 

 

 

 

 

 

 

 

 

 

Net realized (gains) losses on investments

 

 

(0.04

)

 

 

(0.08

)

 

 

0.04

 

 

 

(0.10

)

Change in net unrealized gains on equity investments

 

 

(0.50

)

 

 

0.03

 

 

 

0.37

 

 

 

(0.99

)

Net impairment losses on investments

 

 

-

 

 

 

0.01

 

 

 

-

 

 

 

0.03

 

Credit loss (benefit) expense

 

 

(0.01

)

 

 

-

 

 

 

0.15

 

 

 

-

 

Income tax expense (benefit) on exclusions from net income

 

 

0.12

 

 

 

0.01

 

 

 

(0.12

)

 

 

0.22

 

Non-GAAP operating income per diluted share

 

$

2.53

 

 

$

0.98

 

 

$

6.02

 

 

$

3.80

 

Safety Insurance Group, Inc. and Subsidiaries

Additional Premium Information

(Unaudited)

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2020

 

2019

 

2020

 

2019

Written Premiums

 

 

 

 

 

 

 

 

 

 

 

 

Direct

 

$

213,438

 

 

$

225,751

 

 

$

616,085

 

 

$

662,733

 

Assumed

 

 

5,675

 

 

 

7,473

 

 

 

20,781

 

 

 

23,893

 

Ceded

 

 

(13,355

)

 

 

(21,628

)

 

 

(44,414

)

 

 

(67,807

)

Net written premiums

 

$

205,758

 

 

$

211,596

 

 

$

592,452

 

 

$

618,819

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earned Premiums

 

 

 

 

 

 

 

 

 

 

 

 

Direct

 

$

205,421

 

 

$

213,619

 

 

$

608,517

 

 

$

631,261

 

Assumed

 

 

6,542

 

 

 

7,214

 

 

 

23,411

 

 

 

24,742

 

Ceded

 

 

(17,120

)

 

 

(22,423

)

 

 

(57,288

)

 

 

(66,676

)

Net earned premiums

 

$

194,843

 

 

$

198,410

 

 

$

574,640

 

 

$

589,327

 

 

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