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

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

George M. Murphy, President and Chief Executive Officer, commented: “Safety’s combined ratio of 101.9% for the second quarter is driven mainly by continued inflationary impacts on our private passenger auto line of business. We continue to file rate increases to combat these ongoing industry wide loss trends. For the six months ended June 30, 2023, our policy counts have increased by 11.6%, with an average premium per policy increase of 6.4% compared to the prior period. Safety remains diligent in following consistent underwriting guidelines, while writing additional risks at appropriate rates.”

Net income for the quarter ended June 30, 2023 was $17.0 million, or $1.15 per diluted share, compared to net income of $7.9 million, or $0.53 per diluted share, for the comparable 2022 period. Net income for the six months ended June 30, 2023 was $4.7 million, or $0.31 per diluted share, compared to net income of $15.7 million, or $1.06 per diluted share, for the comparable 2022 period. Non-generally accepted accounting principles (“non-GAAP”) operating income, as defined below, for the quarter ended June 30, 2023 was $0.80 per diluted share, compared to $1.91 per diluted share, for the comparable 2022 period. Non-GAAP operating loss for the six months ended June 30, 2023 was $0.07 per diluted share, compared to Non-GAAP operating income of $2.92 per diluted share, for the comparable 2022 period.

Safety’s book value per share decreased to $53.66 at June 30, 2023 from $54.88 at December 31, 2022 resulting from the impact of a severe winter weather event that occurred in February, and capital stock activities, specifically share repurchases and dividends paid. During the quarter ended June 30,2023, the Company purchased 74,213 shares at a cost of $5.2 million. Safety paid $0.90 per share in dividends to investors during the quarters ended June 30, 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 a $0.90 per share quarterly cash dividend on our issued and outstanding common stock payable on September 15, 2023 to shareholders of record at the close of business on September 1, 2023.

Direct written premiums for the quarter ended June 30, 2023 increased by $45.6 million, or 21.2%, to $260.2 million from $214.6 million for the comparable 2022 period. Direct written premiums for the six months ended June 30, 2023 increased by $73.9 million, or 18.3%, to $478.0 million from $404.1 million for the comparable 2022 period. Net written premiums for the quarter ended June 30, 2023 increased by $42.2 million, or 20.8%, to $245.0 million from $202.7 million for the comparable 2022 period. Net written premiums for the year ended June 30, 2023 increased by $67.1 million, or 17.6%, to $447.9 million from $380.8 million for the comparable 2022 period. The increases in direct written premiums and net written premiums are a result of new business production, improved retention, and rate increases. For the six months ended June 30, 2023, the Company achieved policy count growth across all lines of business, including 13.5%, 4.0% and 9.1% in Private Passenger Automobile, Commercial Automobile and Homeowners lines, respectively, compared to the same period in 2022. Additionally, for the six months ended June 30, 2023, average written premium per policy increased 9.4%, 5.2% and 3.9% in Private Passenger Automobile, Commercial Automobile and Homeowners lines, respectively, compared to the same period in 2022.

Net earned premiums for the quarter ended June 30, 2023 increased by $13.9 million, or 7.4%, to $202.2 million from $188.3 million for the comparable 2022 period. Net earned premiums for the six months ended June 30, 2023 increased by $18.5 million, or 4.9%, to $394.0 million from $375.4 million for the comparable 2022 period.

For the quarter ended June 30, 2023, losses and loss adjustment expenses incurred increased by $30.8 million, or 27.3%, to $143.5 million from $112.7 million for the comparable 2022 period. For the six months ended June 30, 2023, losses and loss adjustment expenses incurred increased by $74.8 million, or 31.7%, to $310.7 million from $235.9 million for the comparable 2022 period. The increase in losses is driven by current market conditions, specifically inflation, as well as a severe winter weather event that occurred in February.

Loss, expense, and combined ratios calculated for the quarter ended June 30, 2023 were 71.0%, 30.9%, and 101.9%, respectively, compared to 59.8%, 32.3%, and 92.1%, respectively, for the comparable 2022 period. Loss, expense, and combined ratios calculated for the six months ended June 30, 2023 were 78.9%, 31.1%, and 110.0%, respectively, compared to 62.8%, 32.6%, and 95.4%, respectively, for the comparable 2022 period. The decrease in the expense ratio is primarily driven by a decrease in contingent commission expenses.

Total prior year favorable development included in the pre-tax results for the quarter ended June 30, 2023 was $10.0 million compared to $16.9 million for the comparable 2022 period. Total prior year favorable development included pre-tax results for the six months ended June 30, 2023 was $21.5 million compared to $29.3 million for the comparable 2022 period, which included the reversal of a $6.5 million accrued reserve for legal defense costs associated with business interruption claims resulting from the COVID-19 pandemic.

Net investment income for the quarter ended June 30, 2023 increased by $2.2 million, or 18.9% to $13.8 million from $11.6 million for the comparable 2022 period. Net investment income for the six months ended June 30, 2023 increased by $5.3 million, or 23.7%, to $27.5 million from $22.2 million for the comparable 2022 period. The increase is a result of increases in interest rates on our fixed maturity portfolio compared to the prior year. Net effective annualized yield on the investment portfolio was 3.9% for the quarter ended June 30, 2023 compared to 3.2% for the comparable 2022 period. Net effective annualized yield on the investment portfolio for the six months ended June 30 was 3.9% compared to 3.0% for the comparable 2022 period. Our duration on fixed maturities was 3.7 years at June 30, 2023 compared to 3.8 years at December 31, 2022.

Non-GAAP Measures

Management has included certain non-GAAP financial measures in presenting the Company’s results. Management believes that these non-GAAP measures are useful to 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 on investments, change in net unrealized gains on equity securities, credit loss benefit (expense) and taxes related thereto. For the three months ended June 30, 2023, an increase of $6.3 million for the change in unrealized gains on equity securities was recognized within income before income taxes, compared to a decrease of $28.9 million recognized in the comparable 2022 period. For the six months ended June 30, 2023, an increase of $7.0 million for the change in unrealized gains on equity securities was recognized in income before income taxes, compared to a decrease of $41.9 million recognized 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. 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; 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, 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)

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

2023

 

2022

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

Fixed maturities, available for sale, at fair value (amortized cost: $1,112,843 and $1,152,779, allowance for expected credit losses of $1,635 and $678)

 

$

1,017,467

 

 

$

1,050,155

 

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

 

 

79

 

 

 

 

Equity securities, at fair value (cost: $214,309 and $231,444)

 

 

230,056

 

 

 

240,155

 

Other invested assets

 

 

125,943

 

 

 

112,850

 

Total investments

 

 

1,373,545

 

 

 

1,403,160

 

Cash and cash equivalents

 

 

25,388

 

 

 

25,300

 

Accounts receivable, net of allowance for expected credit losses of $996 and $1,446

 

 

238,563

 

 

 

192,542

 

Receivable for securities sold

 

 

607

 

 

 

877

 

Accrued investment income

 

 

7,200

 

 

 

8,212

 

Taxes recoverable

 

 

3,129

 

 

 

 

Receivable from reinsurers related to paid loss and loss adjustment expenses

 

 

27,494

 

 

 

12,988

 

Receivable from reinsurers related to unpaid loss and loss adjustment expenses

 

 

96,780

 

 

 

93,394

 

Ceded unearned premiums

 

 

29,973

 

 

 

28,453

 

Deferred policy acquisition costs

 

 

84,423

 

 

 

75,582

 

Deferred income taxes

 

 

20,515

 

 

 

21,074

 

Equity and deposits in pools

 

 

34,249

 

 

 

33,648

 

Operating lease right-of-use-assets

 

 

21,734

 

 

 

23,336

 

Goodwill

 

 

17,093

 

 

 

17,093

 

Intangible assets

 

 

7,439

 

 

 

7,856

 

Other assets

 

 

27,973

 

 

 

29,054

 

Total assets

 

$

2,016,105

 

 

$

1,972,569

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Loss and loss adjustment expense reserves

 

$

565,027

 

 

$

549,598

 

Unearned premium reserves

 

 

488,788

 

 

 

433,375

 

Accounts payable and accrued liabilities

 

 

59,557

 

 

 

73,875

 

Payable for securities purchased

 

 

 

 

 

1,359

 

Payable to reinsurers

 

 

13,069

 

 

 

11,444

 

Taxes payable

 

 

 

 

 

1,729

 

Debt

 

 

35,000

 

 

 

35,000

 

Operating lease liabilities

 

 

21,734

 

 

 

23,336

 

Other liabilities

 

 

39,180

 

 

 

30,854

 

Total liabilities

 

 

1,222,355

 

 

 

1,160,570

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

Common stock: $0.01 par value; 30,000,000 shares authorized; 17,949,717 and 17,879,095 shares issued

 

 

179

 

 

 

179

 

Additional paid-in capital

 

 

224,476

 

 

 

222,049

 

Accumulated other comprehensive (loss) income, net of taxes

 

 

(74,055

)

 

 

(80,538

)

Retained earnings

 

 

793,443

 

 

 

815,309

 

Treasury stock, at cost: 3,157,577 and 3,083,364 shares

 

 

(150,293

)

 

 

(145,000

)

Total shareholders’ equity

 

 

793,750

 

 

 

811,999

 

Total liabilities and shareholders’ equity

 

$

2,016,105

 

 

$

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 June 30,

 

Six Months Ended June 30,

 

 

2023

 

2022

 

2023

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earned premiums

 

$

202,225

 

 

$

188,333

 

 

$

393,960

 

 

$

375,421

 

Net investment income

 

 

13,836

 

 

 

11,635

 

 

 

27,490

 

 

 

22,225

 

Earnings from partnership investments

 

 

553

 

 

 

5,967

 

 

 

2,719

 

 

 

8,799

 

Net realized gains on investments

 

 

108

 

 

 

3,152

 

 

 

841

 

 

 

7,362

 

Change in net unrealized gains on equity securities

 

 

6,266

 

 

 

(28,885

)

 

 

7,036

 

 

 

(41,919

)

Credit loss expense

 

 

(35

)

 

 

 

 

 

(957

)

 

 

 

Commission income

 

 

1,758

 

 

 

 

 

 

3,241

 

 

 

 

Finance and other service income

 

 

4,732

 

 

 

3,403

 

 

 

8,872

 

 

 

6,720

 

Total revenue

 

 

229,443

 

 

 

183,605

 

 

 

443,202

 

 

 

378,608

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Losses and loss adjustment expenses

 

 

143,523

 

 

 

112,715

 

 

 

310,676

 

 

 

235,881

 

Underwriting, operating and related expenses

 

 

62,582

 

 

 

60,872

 

 

 

122,615

 

 

 

122,466

 

Other expense

 

 

1,523

 

 

 

 

 

 

3,193

 

 

 

 

Interest expense

 

 

348

 

 

 

131

 

 

 

558

 

 

 

260

 

Total expenses

 

 

207,976

 

 

 

173,718

 

 

 

437,042

 

 

 

358,607

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

21,467

 

 

 

9,887

 

 

 

6,160

 

 

 

20,001

 

Income tax expense

 

 

4,466

 

 

 

1,986

 

 

 

1,496

 

 

 

4,262

 

Net income

 

$

17,001

 

 

$

7,901

 

 

$

4,664

 

 

$

15,739

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per weighted average common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.15

 

 

$

0.54

 

 

$

0.32

 

 

$

1.07

 

Diluted

 

$

1.15

 

 

$

0.53

 

 

$

0.31

 

 

$

1.06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends paid per common share

 

$

0.90

 

 

$

0.90

 

 

$

1.80

 

 

$

1.80

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of shares used in computing earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

14,681,034

 

 

 

14,599,057

 

 

 

14,681,766

 

 

 

14,613,399

 

Diluted

 

 

14,720,520

 

 

 

14,702,627

 

 

 

14,741,076

 

 

 

14,715,099

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Net Income to Non-GAAP Operating Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

17,001

 

 

$

7,901

 

 

$

4,664

 

 

$

15,739

 

Exclusions from net income:

 

 

 

 

 

 

 

 

 

 

 

 

Net realized gains on investments

 

 

(108

)

 

 

(3,152

)

 

 

(841

)

 

 

(7,362

)

Change in net unrealized (losses) gains on equity securities

 

 

(6,266

)

 

 

28,885

 

 

 

(7,036

)

 

 

41,919

 

Credit loss expense

 

 

35

 

 

 

-

 

 

 

957

 

 

 

-

 

Income tax expense on exclusions from net income

 

 

1,331

 

 

 

(5,404

)

 

 

1,453

 

 

 

(7,257

)

Non-GAAP operating income (loss)

 

$

11,993

 

 

$

28,230

 

 

$

(803

)

 

$

43,039

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per diluted share

 

$

1.15

 

 

$

0.53

 

 

$

0.31

 

 

$

1.06

 

Exclusions from net income:

 

 

 

 

 

 

 

 

 

 

 

 

Net realized gains on investments

 

 

(0.01

)

 

 

(0.21

)

 

 

(0.06

)

 

 

(0.50

)

Change in net unrealized gains on equity securities

 

 

(0.43

)

 

 

1.96

 

 

 

(0.48

)

 

 

2.85

 

Credit loss expense

 

 

-

 

 

 

-

 

 

 

0.06

 

 

 

-

 

Income tax expense on exclusions from net income

 

 

0.09

 

 

 

(0.37

)

 

 

0.10

 

 

 

(0.49

)

Non-GAAP operating income (loss) per diluted share

 

$

0.80

 

 

$

1.91

 

 

$

(0.07

)

 

$

2.92

 

 

Safety Insurance Group, Inc. and Subsidiaries

Additional Premium Information

(Unaudited)

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2023

 

2022

 

2023

 

2022

Written Premiums

 

 

 

 

 

 

 

 

 

 

 

 

Direct

 

$

260,157

 

 

$

214,576

 

 

$

478,009

 

 

$

404,069

 

Assumed

 

 

8,528

 

 

 

7,967

 

 

 

15,758

 

 

 

14,708

 

Ceded

 

 

(23,716

)

 

 

(19,819

)

 

 

(45,914

)

 

 

(38,001

)

Net written premiums

 

$

244,969

 

 

$

202,724

 

 

$

447,853

 

 

$

380,776

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earned Premiums

 

 

 

 

 

 

 

 

 

 

 

 

Direct

 

$

217,281

 

 

$

198,953

 

 

$

422,836

 

 

$

395,472

 

Assumed

 

 

7,605

 

 

 

7,584

 

 

 

15,518

 

 

 

15,338

 

Ceded

 

 

(22,661

)

 

 

(18,204

)

 

 

(44,394

)

 

 

(35,389

)

Net earned premiums

 

$

202,225

 

 

$

188,333

 

 

$

393,960

 

 

$

375,421

 

 

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