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Safety Insurance Group, Inc. Announces First Quarter 2023 Results and Declares Second Quarter 2023 Dividend

Safety Insurance Group, Inc. (NASDAQ:SAFT) (“the Company” or “Safety”) today reported first quarter 2023 results.

George M. Murphy, President and Chief Executive Officer, commented: “The first quarter results were significantly impacted by a thirty-six hour period in February when temperatures plunged below zero across the Northeast region and Boston reached a low of -10 degrees Fahrenheit, the first double digit negative temperature in the region since 1957. This weather resulted in 783 burst pipe claims causing incurred water damage of $32.1 million, which contributed 17.0 percentage points to our combined ratio of 118.5%. In addition to this weather event, our underlying business is impacted by the increased cost of catastrophe reinsurance and continuing inflationary pressure on private passenger auto severity. Offsetting these losses is continued favorable loss reserve development. Despite the challenges in the quarter, we remain focused on the appropriate pricing of our products and anticipate continued rate increases in 2023.”

“As always, Safety is focused on the strong relationships we have with our independent agent partners and our shared customers. This focus, coupled with current market conditions resulted in double-digit growth of 13.9% in net written premium from the prior year due to the result of new business production, specifically in the private passenger auto line, improved retention, and rate increases.”

“We have also seen increases in our other revenue line items including finance service income, commission income and investment income. Specifically, investment income increased 28.9% primarily driven by our bond portfolio. We continue to manage a well-diversified investment portfolio that generates cash and income to the business.”

Net loss for the quarter ended March 31, 2023 was $12.3 million, or $0.84 per diluted share, compared to net income of $7.8 million, or $0.53 per diluted share, for the comparable 2022 period. Non-generally accepted accounting principles (“non-GAAP”) operating loss, as defined below, for the quarter ended March 31, 2023 was $0.87 per diluted share, compared to non-GAAP operating income of $0.99 per diluted share, for the comparable 2022 period.

Safety’s book value per share decreased to $54.01 at March 31, 2023 from $54.88 at December 31, 2022 resulting from the net loss and dividends paid, offset by increases in the value of our fixed maturity portfolio. Safety paid $0.90 per share in dividends to investors during the quarters ended March 31, 2023 and 2022, respectively. Safety paid $3.60 per share in dividends to investors during the year ended December 31, 2022.

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, 2023 to shareholders of record at the close of business on June 1, 2023.

Direct written premiums for the quarter ended March 31, 2023 increased by $28.4 million, or 15.0%, to $217.9 million from $189.5 million for the comparable 2022 period. Net written premiums for the quarter ended March 31, 2023 increased by $24.8 million, or 13.9%, to $202.9 million from $178.1 million for the comparable 2022 period. The increase in written premiums is the result of new business production, improved retention, and rate increases. Net earned premiums for the quarter ended March 31, 2023 increased by $4.6 million, or 2.5%, to $191.7 million from $187.1 million for the comparable 2022 period.

For the quarter ended March 31, 2023, loss and loss adjustment expenses incurred increased by $44.0 million, or 35.7%, to $167.2 million from $123.2 million for the comparable 2022 period. The increase in losses is due to the severe winter weather event in February, as well as current market conditions, specifically inflation.

Loss, expense, and combined ratios for the quarter ended March 31, 2023 were 87.2%, 31.3%, and 118.5%, respectively, compared to 65.8%, 32.9%, and 98.7%, respectively, for the comparable 2022 period. Total prior year favorable development included in the pre-tax results for the quarter ended March 31, 2023 was $11.5 million compared to $12.4 million for the comparable 2022 period. The decrease in the expense ratio is primarily driven by a decrease in contingent commission expenses.

Net investment income for the quarter ended March 31, 2023 increased by $3.1 million, or 28.9%, to $13.7 million from $10.6 million for the comparable 2022 period. The increase is a result of higher yields of 3.8% for the three months ended March 31, 2023 compared to 2.9% for the comparable 2022 period. Our duration was 3.8 years at March 31, 2023 and December 31, 2022 respectively.

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 loss and non-GAAP operating income per diluted share consist of our GAAP net income adjusted by the net realized gains on investments, change in net unrealized gains on equity securities, credit loss expense and taxes related thereto. For the quarter ended March 31, 2023, an increase of $0.8 million for the change in unrealized losses on equity investments was recognized within loss before income taxes, compared to a decrease of $13.0 million for the change in unrealized gains on equity investments in the comparable 2022 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, Safety Property and Casualty Insurance Company, Safety Northeast Insurance Company, and Safety Northeast Insurance Agency, Inc. 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, 2022 Form 10-K with the SEC on February 28, 2023 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 impact of inflation and supply chain delays on loss severity;
  • The possibility that the Commissioner of Insurance may approve future rule changes that change the operation of the residual market;
  • The possibility that existing insurance-related laws and regulations will become further restrictive in the future;
  • The impact of investment, economic and underwriting market conditions, including interest rates and inflation;
  • Our possible need for and availability of additional financing, and our dependence on strategic relationships, among others;
  • 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, 2022 filed with the SEC on February 28, 2023.

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,

 

 

2023

 

2022

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

Fixed maturities, available for sale, at fair value (amortized cost: $1,132,685 and $1,152,779, allowance for expected credit losses of $1,600 and $678)

 

$

1,048,449

 

 

$

1,050,155

 

Short term investments, at fair value (cost: $79 and $0)

 

 

79

 

 

 

 

Equity securities, at fair value (cost: $236,392 and $231,444)

 

 

245,872

 

 

 

240,155

 

Other invested assets

 

 

121,318

 

 

 

112,850

 

Total investments

 

 

1,415,718

 

 

 

1,403,160

 

Cash and cash equivalents

 

 

15,316

 

 

 

25,300

 

Accounts receivable, net of allowance for expected credit losses of $1,244 and $1,446

 

 

205,560

 

 

 

192,542

 

Receivable for securities sold

 

 

1,895

 

 

 

877

 

Accrued investment income

 

 

7,716

 

 

 

8,212

 

Taxes recoverable

 

 

4,835

 

 

 

 

Receivable from reinsurers related to paid loss and loss adjustment expenses

 

 

11,024

 

 

 

12,988

 

Receivable from reinsurers related to unpaid loss and loss adjustment expenses

 

 

95,900

 

 

 

93,394

 

Ceded unearned premiums

 

 

28,918

 

 

 

28,453

 

Deferred policy acquisition costs

 

 

76,919

 

 

 

75,582

 

Deferred income taxes

 

 

17,717

 

 

 

21,074

 

Equity and deposits in pools

 

 

34,008

 

 

 

33,648

 

Operating lease right-of-use-assets

 

 

22,214

 

 

 

23,336

 

Goodwill

 

 

17,093

 

 

 

17,093

 

Intangible assets

 

 

7,637

 

 

 

7,856

 

Other assets

 

 

27,328

 

 

 

29,054

 

Total assets

 

$

1,989,798

 

 

$

1,972,569

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Loss and loss adjustment expense reserves

 

$

570,139

 

 

$

549,598

 

Unearned premium reserves

 

 

444,990

 

 

 

433,375

 

Accounts payable and accrued liabilities

 

 

53,252

 

 

 

73,875

 

Payable for securities purchased

 

 

 

 

 

1,359

 

Payable to reinsurers

 

 

9,895

 

 

 

11,444

 

Taxes payable

 

 

 

 

 

1,729

 

Debt

 

 

45,000

 

 

 

35,000

 

Operating lease liabilities

 

 

22,214

 

 

 

23,336

 

Other liabilities

 

 

41,383

 

 

 

30,854

 

Total liabilities

 

 

1,186,873

 

 

 

1,160,570

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

Common stock: $0.01 par value; 30,000,000 shares authorized; 17,948,889 and 17,879,095 shares issued

 

 

179

 

 

 

179

 

Additional paid-in capital

 

 

223,304

 

 

 

222,049

 

Accumulated other comprehensive (loss) income, net of taxes

 

 

(65,283

)

 

 

(80,538

)

Retained earnings

 

 

789,725

 

 

 

815,309

 

Treasury stock, at cost: 3,083,364 shares

 

 

(145,000

)

 

 

(145,000

)

Total shareholders’ equity

 

 

802,925

 

 

 

811,999

 

Total liabilities and shareholders’ equity

 

$

1,989,798

 

 

$

1,972,569

 

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,

 

 

2023

 

2022

 

 

 

 

 

 

 

Net earned premiums

 

$

191,735

 

 

$

187,088

 

Net investment income

 

 

13,654

 

 

 

10,590

 

Earnings from partnership investments

 

 

2,166

 

 

 

2,832

 

Net realized gains on investments

 

 

733

 

 

 

4,210

 

Change in net unrealized gains on equity securities

 

 

770

 

 

 

(13,034

)

Credit loss expense

 

 

(922

)

 

 

 

Commission income

 

 

1,483

 

 

 

 

Finance and other service income

 

 

4,140

 

 

 

3,317

 

Total revenue

 

 

213,759

 

 

 

195,003

 

 

 

 

 

 

 

 

Losses and loss adjustment expenses

 

 

167,153

 

 

 

123,166

 

Underwriting, operating and related expenses

 

 

60,033

 

 

 

61,594

 

Other expense

 

 

1,670

 

 

 

 

Interest expense

 

 

210

 

 

 

129

 

Total expenses

 

 

229,066

 

 

 

184,889

 

 

 

 

 

 

 

 

(Loss) income before income taxes

 

 

(15,307

)

 

 

10,114

 

Income tax (benefit) expense

 

 

(2,970

)

 

 

2,276

 

Net (loss) income

 

$

(12,337

)

 

$

7,838

 

 

 

 

 

 

 

 

(Loss) earnings per weighted average common share:

 

 

 

 

 

 

Basic

 

$

(0.84

)

 

$

0.53

 

Diluted

 

$

(0.84

)

 

$

0.53

 

 

 

 

 

 

 

 

Cash dividends paid per common share

 

$

0.90

 

 

$

0.90

 

 

 

 

 

 

 

 

Number of shares used in computing earnings per share:

 

 

 

 

 

 

Basic

 

 

14,682,507

 

 

 

14,627,898

 

Diluted

 

 

14,761,861

 

 

 

14,727,707

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Net (Loss) Income to Non-GAAP Operating (Loss) Income

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(12,337

)

 

$

7,838

 

Exclusions from net income:

 

 

 

 

 

 

Net realized gains on investments

 

 

(733

)

 

 

(4,210

)

Change in net unrealized (losses) gains on equity securities

 

 

(770

)

 

 

13,034

 

Credit loss expense

 

 

922

 

 

 

-

 

Income tax expense on exclusions from net (loss) income

 

 

122

 

 

 

(1,853

)

Non-GAAP operating (loss) income

 

$

(12,796

)

 

$

14,809

 

 

 

 

 

 

 

 

Net (loss) income per diluted share

 

$

(0.84

)

 

$

0.53

 

Exclusions from net income:

 

 

 

 

 

 

Net realized gains on investments

 

 

(0.05

)

 

 

(0.29

)

Change in net unrealized gains on equity securities

 

 

(0.05

)

 

 

0.88

 

Credit loss expense

 

 

0.06

 

 

 

-

 

Income tax expense on exclusions from net income

 

 

0.01

 

 

 

(0.13

)

Non-GAAP operating (loss) income per diluted share

 

$

(0.87

)

 

$

0.99

 

Safety Insurance Group, Inc. and Subsidiaries

Additional Premium Information

(Unaudited)

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

2023

 

2022

Written Premiums

 

 

 

 

 

 

Direct

 

$

217,852

 

 

$

189,493

 

Assumed

 

 

7,230

 

 

 

6,741

 

Ceded

 

 

(22,198

)

 

 

(18,182

)

Net written premiums

 

$

202,884

 

 

$

178,052

 

 

 

 

 

 

 

 

Earned Premiums

 

 

 

 

 

 

Direct

 

$

205,555

 

 

$

196,519

 

Assumed

 

 

7,913

 

 

 

7,754

 

Ceded

 

 

(21,733

)

 

 

(17,185

)

Net earned premiums

 

$

191,735

 

 

$

187,088

 

 

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