Safety Announces Third Quarter 2019 Results and Declares Fourth Quarter 2019 Dividend

BOSTON--()--Safety Insurance Group, Inc. (NASDAQ:SAFT) today reported third quarter 2019 results. Net income for the quarter ended September 30, 2019 was $15.6 million, or $1.01 per diluted share, compared to net income of $28.9 million, or $1.88 per diluted share, for the comparable 2018 period. Net income for the nine months ended September 30, 2019 was $71.5 million, or $4.64 per diluted share, compared to net income of $64.8 million, or $4.24 per diluted share, for the comparable 2018 period. Non-generally accepted accounting principles (“non-GAAP”) operating income, as defined below, for the quarter ended September 30, 2019 was $0.98 per diluted share, compared to $1.76 per diluted share, for the comparable 2018 period. Non-GAAP operating income for the nine months ended September 30, 2019 was $3.80 per diluted share, compared to $4.30 per diluted share, for the comparable 2018 period. Safety’s book value per share increased to $51.49 at September 30, 2019 from $47.01 at December 31, 2018. Safety paid $0.90 per share in dividends to investors during the quarter ended September 30, 2019 compared to $0.80 per share during the quarter ended September 30, 2018. Safety paid $3.20 per share in dividends to investors during the year ended December 31, 2018.

On September 12, 2019, we reached an agreement to settle litigation involving a liability claim seeking to recover extra-contractual damages against one of our personal umbrella policyholders. The settlement received court approval and the costs associated with such settlement were accrued during the quarter ended September 30, 2019 within loss and loss adjustment expense. The net pre-tax income impact from this settlement during the quarter ended September 30, 2019 was $6.9 million which represents a direct loss of $15.5 million net of $8.6 million of reinsurance. The after-tax impact of the settlement was $5.5 million or $0.36 per diluted share.

For the quarter ended September 30, 2019, loss and loss adjustment expenses incurred increased by $18.3 million, or 15.7%, to $135.0 million from $116.7 million for the comparable 2018 period. For the nine months ended September 30, 2019, loss and loss adjustment expenses incurred increased by $15.8 million, or 4.3%, to $383.4 million from $367.6 million for the comparable 2018 period. Loss, expense, and combined ratios calculated under U.S. generally accepted accounting principles for the quarter ended September 30, 2019 were 68.0%, 30.7%, and 98.7%, respectively, compared to 59.2%, 31.7%, and 90.9%, respectively, for the comparable 2018 period. Loss, expense, and combined ratios calculated under U.S. generally accepted accounting principles for the nine months ended September 30, 2019 were 65.1%, 30.9%, and 96.0%, respectively, compared to 63.0%, 31.7%, and 94.7%, respectively, for the comparable 2018 period. Total prior year favorable development included in the pre-tax results for the quarter ended September 30, 2019 was $3.2 million compared to $13.0 million for the comparable 2018 period. The decrease is mainly a result of the umbrella claim noted above. Total prior year favorable development included in the pre-tax results for the nine months ended September 30, 2019 was $25.5 million compared to $39.4 million for the comparable 2018 period.

Direct written premiums for the quarter ended September 30, 2019 increased by $5.8 million, or 2.6%, to $225.7 million from $219.9 million for the comparable 2018 period. Direct written premiums for the nine months ended September 30, 2019 increased by $6.0 million or 0.9% to $662.7 million from $656.7 million for the comparable 2018 period. The 2019 increase occurred primarily in our commercial automobile and homeowners lines of business.

Net written premiums for the quarter ended September 30, 2019 increased by $4.1 million, or 2.0%, to $211.6 million from $207.5 million for the comparable 2018 period. Net written premiums for the nine months ended September 30, 2019 increased by $5.8 million, or 0.9%, to $618.8 million from $613.0 million for the comparable 2018 period. Net earned premiums for the quarter ended September 30, 2019 increased by $1.4 million, or 0.7%, to $198.4 million from $197.0 million for the comparable 2018 period. Net earned premiums for the nine months ended September 30, 2019 increased by $6.2 million, or 1.1%, to $589.3 million from $583.1 million for the comparable 2018 period.

Net investment income for the quarter ended September 30, 2019 increased by $0.8 million, or 7.4%, to $11.9 million from $11.1 million for the comparable 2018 period. Net investment income for the nine months ended September 30, 2019 increased by $2.5 million, or 7.6%, to $34.3 million from $31.8 million for the comparable 2018 period. The increase is a result of an increase in the average invested asset balance and improved investment income yields compared to the prior year. Net effective annualized yield on the investment portfolio was 3.5% for the three months ended September 30, 2019 compared to 3.4% for the comparable 2018 period. Net effective annualized yield on the investment portfolio for the nine months ended September 30, 2019 was 3.4% compared to 3.3% for the comparable 2018 period. Our duration on fixed maturities was 2.9 years at September 30, 2019 and 3.6 years at December 31, 2018, respectively.

Today, our Board of Directors approved a $0.90 per share quarterly cash dividend on its issued and outstanding common stock payable on December 13, 2019 to shareholders of record at the close of business on December 2, 2019.

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, net impairment losses on investments, change in net unrealized gains on equity securities and taxes related thereto. For the quarter ended September 30, 2019 a decrease of $0.4 million for the change in unrealized gains was recognized within income before income taxes, compared to an increase of $2.4 million recognized in the comparable 2018 period. For the nine months ended September 30, 2019, an increase of $15.2 million for the change in unrealized gains was recognized in income before income taxes, compared to a decrease of $3.7 million recognized in the comparable 2018 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, 2018 Form 10-K with the SEC on February 28, 2019 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, 2018 filed with the SEC on February 28, 2019.

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,

 

 

2019

 

2018

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

Fixed maturities, available for sale, at fair value (amortized cost: $1,172,117 and $1,175,413)

 

$

 

1,207,829

 

 

$

 

1,161,862

 

Equity securities, at fair value (cost: $146,829 and $142,948)

 

 

167,061

 

 

 

148,011

 

Other invested assets

 

 

34,206

 

 

 

23,481

 

Total investments

 

 

1,409,096

 

 

 

1,333,354

 

Cash and cash equivalents

 

 

47,482

 

 

 

37,582

 

Accounts receivable, net of allowance for doubtful accounts

 

 

209,906

 

 

 

190,062

 

Receivable for securities sold

 

 

702

 

 

 

1,039

 

Accrued investment income

 

 

9,475

 

 

 

8,420

 

Taxes recoverable

 

 

1,454

 

 

 

 

Receivable from reinsurers related to paid loss and loss adjustment expenses

 

 

33,209

 

 

 

13,691

 

Receivable from reinsurers related to unpaid loss and loss adjustment expenses

 

 

117,884

 

 

 

108,398

 

Ceded unearned premiums

 

 

35,105

 

 

 

33,974

 

Deferred policy acquisition costs

 

 

78,344

 

 

 

73,355

 

Deferred income taxes

 

 

 

 

 

8,749

 

Equity and deposits in pools

 

 

33,231

 

 

 

28,094

 

Operating lease right-of-use-assets

 

 

35,758

 

 

 

 

Other assets

 

 

22,155

 

 

 

19,522

 

Total assets

 

$

 

2,033,801

 

 

$

 

1,856,240

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Loss and loss adjustment expense reserves

 

$

 

601,459

 

 

$

 

584,719

 

Unearned premium reserves

 

 

466,003

 

 

 

435,380

 

Accounts payable and accrued liabilities

 

 

61,515

 

 

 

71,896

 

Payable for securities purchased

 

 

6,145

 

 

 

5,156

 

Payable to reinsurers

 

 

33,101

 

 

 

12,220

 

Deferred income taxes

 

 

2,726

 

 

 

 

Taxes payable

 

 

 

 

 

6,090

 

Operating lease liabilities

 

 

35,758

 

 

 

 

Other liabilities

 

 

35,017

 

 

 

22,135

 

Total liabilities

 

 

1,241,724

 

 

 

1,137,596

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

Common stock: $0.01 par value; 30,000,000 shares authorized; 17,663,364 and 17,566,180 shares issued

 

 

177

 

 

 

176

 

Additional paid-in capital

 

 

200,836

 

 

 

196,292

 

Accumulated other comprehensive income (loss), net of taxes

 

 

28,212

 

 

 

(10,706

)

Retained earnings

 

 

646,687

 

 

 

616,717

 

Treasury stock, at cost: 2,279,570 shares

 

 

(83,835

)

 

 

(83,835

)

Total shareholders’ equity

 

 

792,077

 

 

 

718,644

 

Total liabilities and shareholders’ equity

 

$

 

2,033,801

 

 

$

 

1,856,240

 

 

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,

 

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earned premiums

 

$

 

198,410

 

 

$

 

196,968

 

 

$

 

589,327

 

 

$

 

583,126

 

Net investment income

 

 

11,947

 

 

 

11,120

 

 

 

34,272

 

 

 

31,839

 

(Losses) earnings from partnership investments

 

 

(139

)

 

 

1,188

 

 

 

1,431

 

 

 

6,539

 

Net realized gains on investments

 

 

1,194

 

 

 

53

 

 

 

1,513

 

 

 

2,948

 

Change in net unrealized gains on equity investments

 

 

(387

)

 

 

2,444

 

 

 

15,168

 

 

 

(3,749

)

Net impairment losses on investments (a)

 

 

(123

)

 

 

(228

)

 

 

(397

)

 

 

(228

)

Finance and other service income

 

 

4,371

 

 

 

4,362

 

 

 

12,540

 

 

 

13,121

 

Total revenue

 

 

215,273

 

 

 

215,907

 

 

 

653,854

 

 

 

633,596

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Losses and loss adjustment expenses

 

 

134,966

 

 

 

116,693

 

 

 

383,386

 

 

 

367,564

 

Underwriting, operating and related expenses

 

 

60,845

 

 

 

62,496

 

 

 

182,187

 

 

 

184,925

 

Interest expense

 

 

22

 

 

 

22

 

 

 

67

 

 

 

67

 

Total expenses

 

 

195,833

 

 

 

179,211

 

 

 

565,640

 

 

 

552,556

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

19,440

 

 

 

36,696

 

 

 

88,214

 

 

 

81,040

 

Income tax expense

 

 

3,821

 

 

 

7,788

 

 

 

16,715

 

 

 

16,191

 

Net income

 

$

 

15,619

 

 

$

 

28,908

 

 

$

 

71,499

 

 

$

 

64,849

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per weighted average common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

 

1.02

 

 

$

 

1.90

 

 

$

 

4.68

 

 

$

 

4.28

 

Diluted

 

$

 

1.01

 

 

$

 

1.88

 

 

$

 

4.64

 

 

$

 

4.24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends paid per common share

 

$

 

0.90

 

 

$

 

0.80

 

 

$

 

2.50

 

 

$

 

2.40

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of shares used in computing earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

15,220,902

 

 

 

15,091,754

 

 

 

15,194,469

 

 

 

15,076,214

 

Diluted

 

 

15,360,908

 

 

 

15,250,332

 

 

 

15,337,331

 

 

 

15,217,927

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a) No portion of the other-than-temporary impairments recognized in the period indicated were included in Other Comprehensive Income.

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Net Income to Non-GAAP Operating Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

 

15,619

 

 

$

 

28,908

 

 

$

 

71,499

 

 

$

 

64,849

 

Exclusions from net income:

 

 

 

 

 

 

 

 

 

 

 

 

Net realized gains on investments

 

 

(1,194

)

 

 

(53

)

 

 

(1,513

)

 

 

(2,948

)

Change in net unrealized gains on equity investments

 

 

387

 

 

 

(2,444

)

 

 

(15,168

)

 

 

3,749

 

Net impairment losses on investments

 

 

123

 

 

 

228

 

 

 

397

 

 

 

228

 

Income tax expense (benefit) on exclusions from net income

 

 

144

 

 

 

476

 

 

 

3,420

 

 

 

(216

)

Non-GAAP operating income

 

$

 

15,079

 

 

$

 

27,115

 

 

$

 

58,635

 

 

$

 

65,662

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per diluted share

 

$

 

1.01

 

 

$

 

1.88

 

 

$

 

4.64

 

 

$

 

4.24

 

Exclusions from net income:

 

 

 

 

 

 

 

 

 

 

 

 

Net realized gains on investments

 

 

(0.08

)

 

 

-

 

 

 

(0.10

)

 

 

(0.19

)

Change in net unrealized gains on equity investments

 

 

0.03

 

 

 

(0.16

)

 

 

(0.99

)

 

 

0.25

 

Net impairment losses on investments

 

 

0.01

 

 

 

0.01

 

 

 

0.03

 

 

 

0.01

 

Income tax expense (benefit) on exclusions from net income

 

 

0.01

 

 

 

0.03

 

 

 

0.22

 

 

 

(0.01

)

Non-GAAP operating income per diluted share

 

$

 

0.98

 

 

$

 

1.76

 

 

$

 

3.80

 

 

$

 

4.30

 

 

Safety Insurance Group, Inc. and Subsidiaries
Additional Premium Information
(Unaudited)
(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2019

 

2018

 

2019

 

2018

Written Premiums

 

 

 

 

 

 

 

 

 

 

 

 

Direct

 

$

 

225,751

 

 

$

 

219,930

 

 

$

 

662,733

 

 

$

 

656,713

 

Assumed

 

 

7,473

 

 

 

7,750

 

 

 

23,893

 

 

 

23,995

 

Ceded

 

 

(21,628

)

 

 

(20,174

)

 

 

(67,807

)

 

 

(67,674

)

Net written premiums

 

$

 

211,596

 

 

$

 

207,506

 

 

$

 

618,819

 

 

$

 

613,034

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earned Premiums

 

 

 

 

 

 

 

 

 

 

 

 

Direct

 

$

 

213,619

 

 

$

 

212,209

 

 

$

 

631,261

 

 

$

 

624,325

 

Assumed

 

 

7,214

 

 

 

7,469

 

 

 

24,742

 

 

 

24,236

 

Ceded

 

 

(22,423

)

 

 

(22,710

)

 

 

(66,676

)

 

 

(65,435

)

Net earned premiums

 

$

 

198,410

 

 

$

 

196,968

 

 

$

 

589,327

 

 

$

 

583,126

 

 

Contacts

Safety Insurance Group, Inc.
Office of Investor Relations
877-951-2522

InvestorRelations@SafetyInsurance.com

Release Summary

SAFETY ANNOUNCES THIRD QUARTER 2019 RESULTS AND DECLARES FOURTH QUARTER 2019 DIVIDEND

Contacts

Safety Insurance Group, Inc.
Office of Investor Relations
877-951-2522

InvestorRelations@SafetyInsurance.com