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
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201104005610/en/
Safety Insurance Group, Inc. Office of Investor Relations
877-951-2522 InvestorRelations@SafetyInsurance.com
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