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Safety Insurance Group, Inc. Announces Fourth Quarter and Full Year 2022 Results

Safety Insurance Group, Inc. (NASDAQ:SAFT) (“Safety” or the “Company”) today reported fourth quarter and full year 2022 results.

George M. Murphy, President and Chief Executive Officer, commented: “Looking back at 2022, Safety Insurance had another financially successful year with a combined ratio of 97.2%, GAAP earnings per diluted share of $3.15 and non-GAAP operating earnings per diluted share of $5.05. While industry challenges around inflation continue to exist, our commitment to strong underwriting results and enhanced investment returns, remains unchanged. As always, we focus on pricing our products appropriately for the risks we are insuring while generating the capital to grow our business in new and creative ways.”

“To that point, on December 1, 2022, we completed the previously announced acquisition of Northeast Insurance Agency, Inc. This acquisition strengthens our position within the independent agency channel and provides us further insights to enhance our customer engagement initiatives and the services we provide.”

Fourth Quarter and Year Ended 2022 Results and Recent Development

Net income for the quarter ended December 31, 2022 was $24.6 million, or $1.67 per diluted share, compared to net income of $32.0 million, or $2.14 per diluted share, for the comparable 2021 period. Net income for the year ended December 31, 2022 was $46.6 million, or $3.15 per diluted share, compared to net income of $130.7 million, or $8.80 per diluted share, for the comparable 2021 period. Non-generally accepted accounting principles (“non-GAAP”) operating income, as defined below, for the quarter ended December 31, 2022 was $0.98 per diluted share, compared to $1.55 per diluted share, for the comparable 2021 period. Non-GAAP operating income for the year ended December 31, 2022 was $5.05 per diluted share, compared to $7.14 per diluted share, for the comparable 2021 period.

Safety’s book value per share decreased to $54.88 at December 31, 2022 from $62.47 at December 31, 2021 resulting from the impact of interest rate changes on the value of our fixed maturity portfolio of $105.1 million. Additional decreases in book value resulted from capital allocation activities, specifically dividends paid, and shares repurchased during the year ended December 31, 2022. Safety paid $0.90 per share in dividends to investors during the quarters ended December 31, 2022 and 2021, respectively. Safety paid $3.60 per share in dividends to investors during the year ended December 31, 2021 and 2021, respectively.

On February 15, 2023, our Board of Directors approved a $0.90 per share quarterly cash dividend on our issued and outstanding common stock payable on March 15, 2023 to shareholders of record at the close of business on March 1, 2023.

Direct written premiums for the quarter ended December 31, 2022 increased by $19.8 million, or 10.9%, to $201.4 million from $181.6 million for the comparable 2021 period. Direct written premiums for the year ended December 31, 2022 increased by $21.2 million, or 2.6% to $823.3 million from $802.1 million for the comparable 2021 period. Net written premiums for the quarter ended December 31, 2022 increased by $16.6 million, or 9.7%, to $187.5 million from $170.9 million for the comparable 2021 period. Net written premiums for the year ended December 31, 2022 increased by $9.2 million, or 1.2%, to $773.7 million from $764.5 million for the comparable 2021 period. The increases in direct written premium and net written premium, specifically in the fourth quarter, are a result of new business production, improved retention, and rate increases.

Net earned premiums for the quarter ended December 31, 2022 increased by $0.4 million, or 0.2%, to $193.2 million from $192.8 million for the comparable 2021 period. Net earned premiums for the year ended December 31, 2022 decreased by $15.8 million, or 2.0%, to $758.5 million from $774.3 million for the comparable 2021 period.

For the quarter ended December 31, 2022, losses and loss adjustment expenses incurred increased by $11.1 million, or 9.2%, to $132.0 million from $120.9 million for the comparable 2021 period. For the year ended December 31, 2022, losses and loss adjustment expenses incurred increased by $30.3 million, or 6.6%, to $492.0 million from $461.7 million for the comparable 2021 period. The increase in losses is due to a return of pre-pandemic frequency in our private passenger automobile line of business and current market conditions specifically inflation.

Loss, expense, and combined ratios calculated for the quarter ended December 31, 2022 were 68.4%, 32.3%, and 100.7%, respectively, compared to 62.7%, 33.7%, and 96.4%, respectively, for the comparable 2021 period. Loss, expense, and combined ratios calculated for the year ended December 31, 2022 were 64.9%, 32.3%, and 97.2%, respectively, compared to 59.6%, 33.4%, and 93.0%, respectively, for the comparable 2021 period. The decrease in the expense ratio is driven by a decrease in contingent commission expenses.

Total prior year favorable development included in the pre-tax results for the quarter ended December 31, 2022 was $14.1 million compared to $12.5 million for the comparable 2021 period. Total prior year favorable development included in the pre-tax results for the year ended December 31, 2022 was $57.3 million compared to $53.7 million for the comparable 2021 period.

Net investment income for the quarter ended December 31, 2022 increased by $1.7 million, or 14.3% to $13.4 million from $11.7 million for the comparable 2021 period. Net investment income for the year ended December 31, 2022 increased by $2.6 million, or 5.9%, to $46.7 million from $44.1 million for the comparable 2021 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 3.7% for the quarter ended December 31, 2022 compared to 3.1% for the comparable 2021 period. Net effective annualized yield on the investment portfolio for the year ended December 31, 2022 was 3.2% compared to 3.0% for the comparable 2021 period. Our duration on fixed maturities was 3.8 years at December 31, 2022 compared to 3.6 years at December 31, 2021.

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 quarter ended December 31, 2022, an increase of $11.9 million for the change in unrealized losses on equity securities was recognized within income before income taxes, compared to an increase of $4.7 million recognized in the comparable 2021 period. For the year ended December 31, 2022, a decrease of $44.4 million for the change in unrealized gains on equity securities was recognized in income before income taxes, compared to an increase of $16.1 million recognized in the comparable 2021 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, 2021 Form 10-K with the SEC on February 28, 2022 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, 2021 filed with the SEC on February 28, 2022.

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)

 

 

 

 

 

 

 

 

 

December 31,

 

December 31,

 

 

2022

 

2021

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

Fixed maturities, available for sale, at fair value (amortized cost: $1,152,779 and $1,187,857, allowance for expected credit losses of $678 and $691)

 

$

1,050,155

 

 

$

1,218,279

 

Equity securities, at fair value (cost: $231,444 and $211,848)

 

 

240,155

 

 

 

264,945

 

Other invested assets

 

 

112,850

 

 

 

87,911

 

Total investments

 

 

1,403,160

 

 

 

1,571,135

 

Cash and cash equivalents

 

 

25,300

 

 

 

63,603

 

Accounts receivable, net of allowance for expected credit losses of $1,446 and $1,808

 

 

192,542

 

 

 

170,953

 

Receivable for securities sold

 

 

877

 

 

 

9,256

 

Accrued investment income

 

 

8,212

 

 

 

7,401

 

Taxes recoverable

 

 

 

 

 

1,508

 

Receivable from reinsurers related to paid loss and loss adjustment expenses

 

 

12,988

 

 

 

18,234

 

Receivable from reinsurers related to unpaid loss and loss adjustment expenses

 

 

93,394

 

 

 

90,667

 

Ceded unearned premiums

 

 

28,453

 

 

 

23,795

 

Deferred policy acquisition costs

 

 

75,582

 

 

 

73,024

 

Deferred income taxes

 

 

21,074

 

 

 

 

Equity and deposits in pools

 

 

33,648

 

 

 

33,592

 

Operating lease right-of-use-assets

 

 

23,336

 

 

 

27,115

 

Goodwill

 

 

17,093

 

 

 

 

Intangible Asset

 

 

7,856

 

 

 

 

Other assets

 

 

29,054

 

 

 

27,108

 

Total assets

 

$

1,972,569

 

 

$

2,117,391

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Loss and loss adjustment expense reserves

 

$

549,598

 

 

$

570,651

 

Unearned premium reserves

 

 

433,375

 

 

 

413,487

 

Accounts payable and accrued liabilities

 

 

73,875

 

 

 

76,598

 

Payable for securities purchased

 

 

1,359

 

 

 

16,477

 

Payable to reinsurers

 

 

11,444

 

 

 

9,192

 

Deferred income taxes

 

 

 

 

 

15,240

 

Taxes payable

 

 

1,729

 

 

 

 

Debt

 

 

35,000

 

 

 

30,000

 

Operating lease liabilities

 

 

23,336

 

 

 

27,115

 

Other liabilities

 

 

30,854

 

 

 

31,458

 

Total liabilities

 

 

1,160,570

 

 

 

1,190,218

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

Common stock: $0.01 par value; 30,000,000 shares authorized; 17,879,095 and 17,813,370 shares issued

 

 

179

 

 

 

178

 

Additional paid-in capital

 

 

222,049

 

 

 

216,070

 

Accumulated other comprehensive (loss) income, net of taxes

 

 

(80,538

)

 

 

24,579

 

Retained earnings

 

 

815,309

 

 

 

821,743

 

Treasury stock, at cost: 3,083,364 and 2,970,573 shares

 

 

(145,000

)

 

 

(135,397

)

Total shareholders’ equity

 

 

811,999

 

 

 

927,173

 

Total liabilities and shareholders’ equity

 

$

1,972,569

 

 

$

2,117,391

 

 

Safety Insurance Group, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

(Dollars in thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended December 31,

 

Year Ended December 31,

 

 

2022

 

2021

 

2022

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earned premiums

 

$

193,153

 

 

$

192,786

 

 

$

758,505

 

 

$

774,328

 

Net investment income

 

 

13,388

 

 

 

11,717

 

 

 

46,725

 

 

 

44,135

 

Earnings from partnership investments

 

 

2,809

 

 

 

7,204

 

 

 

12,484

 

 

 

19,829

 

Net realized gains on investments

 

 

577

 

 

 

6,378

 

 

 

9,190

 

 

 

14,885

 

Change in net unrealized (losses) gains on equity securities

 

 

11,897

 

 

 

4,716

 

 

 

(44,386

)

 

 

16,130

 

Credit loss (expense) benefit

 

 

221

 

 

 

38

 

 

 

14

 

 

 

363

 

Commission Income

 

 

566

 

 

 

 

 

 

566

 

 

 

 

Finance and other service income

 

 

3,992

 

 

 

3,581

 

 

 

14,461

 

 

 

15,241

 

Total revenue

 

 

226,603

 

 

 

226,420

 

 

 

797,559

 

 

 

884,911

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Losses and loss adjustment expenses

 

 

132,029

 

 

 

120,942

 

 

 

491,979

 

 

 

461,727

 

Underwriting, operating and related expenses

 

 

62,306

 

 

 

64,988

 

 

 

245,145

 

 

 

258,392

 

Other Expense

 

 

330

 

 

 

 

 

 

330

 

 

 

 

Interest expense

 

 

132

 

 

 

132

 

 

 

524

 

 

 

522

 

Total expenses

 

 

194,797

 

 

 

186,062

 

 

 

737,978

 

 

 

720,641

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

31,806

 

 

 

40,358

 

 

 

59,581

 

 

 

164,270

 

Income tax expense

 

 

7,176

 

 

 

8,309

 

 

 

13,020

 

 

 

33,560

 

Net income

 

$

24,630

 

 

$

32,049

 

 

$

46,561

 

 

$

130,710

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per weighted average common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.68

 

 

$

2.15

 

 

$

3.17

 

 

$

8.85

 

Diluted

 

$

1.67

 

 

$

2.14

 

 

$

3.15

 

 

$

8.80

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends paid per common share

 

$

0.90

 

 

$

0.90

 

 

$

3.60

 

 

$

3.60

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of shares used in computing earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

14,604,189

 

 

 

14,835,334

 

 

 

14,607,483

 

 

 

14,828,736

 

Diluted

 

 

14,701,879

 

 

 

14,934,208

 

 

 

14,710,611

 

 

 

14,925,726

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Net Income to Non-GAAP Operating Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

24,630

 

 

$

32,049

 

 

$

46,561

 

 

$

130,710

 

Exclusions from net income:

 

 

 

 

 

 

 

 

 

 

 

 

Net realized gains on investments

 

 

(577

)

 

 

(6,378

)

 

 

(9,190

)

 

 

(14,885

)

Change in net unrealized (losses) gains on equity securities

 

 

(11,897

)

 

 

(4,716

)

 

 

44,386

 

 

 

(16,130

)

Credit loss (benefit) expense

 

 

(221

)

 

 

(38

)

 

 

(14

)

 

 

(363

)

Income tax expense on exclusions from net income

 

 

2,666

 

 

 

2,338

 

 

 

(7,388

)

 

 

6,589

 

Non-GAAP operating income

 

$

14,601

 

 

$

23,255

 

 

$

74,355

 

 

$

105,921

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per diluted share

 

$

1.67

 

 

$

2.14

 

 

$

3.15

 

 

$

8.80

 

Exclusions from net income:

 

 

 

 

 

 

 

 

 

 

 

 

Net realized gains on investments

 

 

(0.04

)

 

 

(0.43

)

 

 

(0.62

)

 

 

(1.00

)

Change in net unrealized gains on equity securities

 

 

(0.81

)

 

 

(0.32

)

 

 

3.02

 

 

 

(1.08

)

Credit loss (benefit) expense

 

 

(0.02

)

 

 

-

 

 

 

-

 

 

 

(0.02

)

Income tax expense on exclusions from net income

 

 

0.18

 

 

 

0.16

 

 

 

(0.50

)

 

 

0.44

 

Non-GAAP operating income per diluted share

 

$

0.98

 

 

$

1.55

 

 

$

5.05

 

 

$

7.14

 

 

Safety Insurance Group, Inc. and Subsidiaries

Additional Premium Information

(Unaudited)

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended December 31,

 

Year Ended December 31,

 

 

2022

 

2021

 

2022

 

2021

Written Premiums

 

 

 

 

 

 

 

 

 

 

 

 

Direct

 

$

201,371

 

 

$

181,571

 

 

$

823,318

 

 

$

802,139

 

Assumed

 

 

7,667

 

 

 

8,014

 

 

 

28,835

 

 

 

31,359

 

Ceded

 

 

(21,507

)

 

 

(18,707

)

 

 

(78,418

)

 

 

(68,972

)

Net written premiums

 

$

187,531

 

 

$

170,878

 

 

$

773,735

 

 

$

764,526

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earned Premiums

 

 

 

 

 

 

 

 

 

 

 

 

Direct

 

$

205,627

 

 

$

202,881

 

 

$

803,289

 

 

$

811,329

 

Assumed

 

 

7,141

 

 

 

7,384

 

 

 

28,976

 

 

 

30,583

 

Ceded

 

 

(19,615

)

 

 

(17,479

)

 

 

(73,760

)

 

 

(67,584

)

Net earned premiums

 

$

193,153

 

 

$

192,786

 

 

$

758,505

 

 

$

774,328

 

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