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

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

George M. Murphy, President and Chief Executive Officer, commented: “The third quarter financial results continue to be impacted by the inflationary pressures on our Private Passenger Automobile book of business. Safety’s third quarter combined ratio of 104.8% also includes an increased amount of Private Passenger Automobile losses resulting from multiple flooding events and a wind event that impacted our Homeowners book of business. We continue to see strong growth in our Net Written Premiums which increased by 22.2% and 19.2% for the three and nine months ended September 30, 2023, respectively. This is driven by an increase in policy counts of 11.5% and an increase in average written premium per policy of 7.6%.”

“We continue to file rate increases to combat the ongoing industry wide loss and severity trends in the private passenger automobile business. We have also been approved for increases across all other lines of business. Safety remains committed to maintaining underwriting discipline, while leveraging investments in our pricing and risk management areas to ensure rate adequacy.”

Net income for the quarter ended September 30, 2023 was $1.9 million, or $0.13 per diluted share, compared to net income of $6.2 million, or $0.42 per diluted share, for the comparable 2022 period. Net income for the nine months ended September 30, 2023 was $6.6 million, or $0.45 per diluted share, compared to net income of $21.9 million, or $1.48 per diluted share, for the comparable 2022 period. Non-generally accepted accounting principles (“non-GAAP”) operating income, as defined below, for the quarter ended September 30, 2023 was $0.59 per diluted share, compared to $1.13 per diluted share, for the comparable 2022 period. Non-GAAP operating income for the nine months ended September 30, 2023 was $0.54 per diluted share, compared to Non-GAAP operating income of $4.05 per diluted share, for the comparable 2022 period.

Safety’s book value per share decreased to $52.04 at September 30, 2023 from $54.88 at December 31, 2022 resulting from net income offset by capital stock activities, specifically share repurchases and dividends paid. During the nine months ended September 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 September 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 December 15, 2023 to shareholders of record at the close of business on December 1, 2023.

Direct written premiums for the quarter ended September 30, 2023 increased by $49.2 million, or 22.6%, to $267.1 million from $217.9 million for the comparable 2022 period. Direct written premiums for the nine months ended September 30, 2023 increased by $123.2 million, or 19.8% to $745.1 million from $621.9 million for the comparable 2022 period. Net written premiums for the quarter ended September 30, 2023 increased by $45.6 million, or 22.2%, to $251.1 million from $205.5 million for the comparable 2022 period. Net written premiums for the year ended September 30, 2023 increased by $112.7 million, or 19.2%, to $698.9 million from $586.2 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 nine months ended September 30, 2023, the Company achieved policy count growth across all lines of business, including 14.1%, 5.9% and 9.7% in Private Passenger Automobile, Commercial Automobile and Homeowners lines, respectively, compared to the same period in 2022. Additionally, for the nine months ended September 30, 2023, average written premium per policy increased 10.7%, 4.5% and 4.5% in Private Passenger Automobile, Commercial Automobile and Homeowners lines, respectively, compared to the same period in 2022.

Net earned premiums for the quarter ended September 30, 2023 increased by $24.5 million, or 12.9%, to $214.4 million from $189.9 million for the comparable 2022 period. Net earned premiums for the nine months ended September 30, 2023 increased by $43.0 million, or 7.6%, to $608.4 million from $565.4 million for the comparable 2022 period.

For the quarter ended September 30, 2023, losses and loss adjustment expenses incurred increased by $35.4 million, or 28.6%, to $159.5 million from $124.1 million for the comparable 2022 period. For the nine months ended September 30, 2023, losses and loss adjustment expenses incurred increased by $110.2 million, or 30.6%, to $470.2 million from $360.0 million for the comparable 2022 period. The increase in losses is driven by current market conditions, specifically inflation, as well as weather events including multiple flood events, a high wind event, and a severe winter weather event that occurred in February.

Loss, expense, and combined ratios calculated for the quarter ended September 30, 2023, were 74.4%, 30.4%, and 104.8%, respectively, compared to 65.3%, 31.8%, and 97.1%, respectively, for the comparable 2022 period. Loss, expense, and combined ratios calculated for the nine months ended September 30, 2023 were 77.3%, 30.9%, and 108.2%, respectively, compared to 63.7%, 32.3%, and 96.0%, 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 September 30, 2023 was $13.5 million compared to $14.0 million for the comparable 2022 period. Total prior year favorable development included pre-tax results for the nine months ended September 30, 2023 was $35.0 million compared to $43.2 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 September 30, 2023 increased by $2.9 million, or 26.0% to $14.0 million from $11.1 million for the comparable 2022 period. Net investment income for the nine months ended September 30, 2023 increased by $8.2 million, or 24.5%, to $41.5 million from $33.3 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 4.0% for the quarter ended September 30, 2023 compared to 3.1% for the comparable 2022 period. Net effective annualized yield on the investment portfolio for the nine months ended September 30, 2023 was 3.9% compared to 3.0% for the comparable 2022 period. Our duration on fixed maturities was 3.6 years at September 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 September 30, 2023, a decrease of $9.2 million for the change in unrealized gains on equity securities was recognized within income before income taxes, compared to a decrease of $14.4 million recognized in the comparable 2022 period. For the nine months ended September 30, 2023, a decrease of $2.1 million for the change in unrealized gains on equity securities was recognized in income before income taxes, compared to a decrease of $56.3 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)

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

2023

 

2022

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

Fixed maturities, available for sale, at fair value (amortized cost: $1,117,352 and $1,152,779, allowance for expected credit losses of $1,231 and $678)

 

$

1,005,225

 

$

1,050,155

Equity securities, at fair value (cost: $216,589 and $231,444)

 

 

223,152

 

 

240,155

Other invested assets

 

 

129,739

 

 

112,850

Total investments

 

 

1,358,116

 

 

1,403,160

Cash and cash equivalents

 

 

30,894

 

 

25,300

Accounts receivable, net of allowance for expected credit losses of $867 and $1,446

 

 

258,267

 

 

192,542

Receivable for securities sold

 

 

845

 

 

877

Accrued investment income

 

 

7,688

 

 

8,212

Taxes recoverable

 

 

7,286

 

 

Receivable from reinsurers related to paid loss and loss adjustment expenses

 

 

30,006

 

 

12,988

Receivable from reinsurers related to unpaid loss and loss adjustment expenses

 

 

106,708

 

 

93,394

Ceded unearned premiums

 

 

29,819

 

 

28,453

Deferred policy acquisition costs

 

 

91,613

 

 

75,582

Deferred income taxes

 

 

21,307

 

 

21,074

Equity and deposits in pools

 

 

37,096

 

 

33,648

Operating lease right-of-use-assets

 

 

20,586

 

 

23,336

Goodwill

 

 

17,093

 

 

17,093

Intangible assets

 

 

7,242

 

 

7,856

Other assets

 

 

27,539

 

 

29,054

Total assets

 

$

2,052,105

 

$

1,972,569

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Loss and loss adjustment expense reserves

 

$

584,175

 

$

549,598

Unearned premium reserves

 

 

525,297

 

 

433,375

Accounts payable and accrued liabilities

 

 

61,757

 

 

73,875

Payable for securities purchased

 

 

2,059

 

 

1,359

Payable to reinsurers

 

 

24,526

 

 

11,444

Taxes payable

 

 

 

 

1,729

Debt

 

 

30,000

 

 

35,000

Operating lease liabilities

 

 

20,586

 

 

23,336

Other liabilities

 

 

33,956

 

 

30,854

Total liabilities

 

 

1,282,356

 

 

1,160,570

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

Common stock: $0.01 par value; 30,000,000 shares authorized; 17,949,484 and 17,879,095 shares issued

 

 

179

 

 

179

Additional paid-in capital

 

 

225,301

 

 

222,049

Accumulated other comprehensive (loss) income, net of taxes

 

 

(87,607)

 

 

(80,538)

Retained earnings

 

 

782,169

 

 

815,309

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

 

 

(150,293)

 

 

(145,000)

Total shareholders’ equity

 

 

769,749

 

 

811,999

Total liabilities and shareholders’ equity

 

$

2,052,105

 

$

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

September 30,

 

Nine Months Ended

September 30,

 

 

2023

 

2022

 

2023

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earned premiums

 

$

214,425

 

$

189,931

 

$

608,385

 

$

565,352

Net investment income

 

 

14,005

 

 

11,112

 

 

41,495

 

 

33,337

Earnings from partnership investments

 

 

2,427

 

 

876

 

 

5,146

 

 

9,675

Net realized gains on investments

 

 

270

 

 

1,251

 

 

1,111

 

 

8,613

Change in net unrealized gains on equity securities

 

 

(9,184)

 

 

(14,364)

 

 

(2,148)

 

 

(56,283)

Credit loss expense

 

 

403

 

 

(207)

 

 

(554)

 

 

(207)

Commission income

 

 

1,918

 

 

 

 

5,159

 

 

Finance and other service income

 

 

5,094

 

 

3,749

 

 

13,966

 

 

10,469

Total revenue

 

 

229,358

 

 

192,348

 

 

672,560

 

 

570,956

 

 

 

 

 

 

 

 

 

 

 

 

 

Losses and loss adjustment expenses

 

 

159,521

 

 

124,069

 

 

470,197

 

 

359,950

Underwriting, operating and related expenses

 

 

65,217

 

 

60,373

 

 

187,832

 

 

182,839

Other expense

 

 

2,005

 

 

 

 

5,198

 

 

Interest expense

 

 

139

 

 

132

 

 

697

 

 

392

Total expenses

 

 

226,882

 

 

184,574

 

 

663,924

 

 

543,181

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

2,476

 

 

7,774

 

 

8,636

 

 

27,775

Income tax expense

 

 

527

 

 

1,582

 

 

2,023

 

 

5,844

Net income

 

$

1,949

 

$

6,192

 

$

6,613

 

$

21,931

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per weighted average common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.13

 

$

0.42

 

$

0.45

 

$

1.49

Diluted

 

$

0.13

 

$

0.42

 

$

0.45

 

$

1.48

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends paid per common share

 

$

0.90

 

$

0.90

 

$

2.70

 

$

2.70

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of shares used in computing earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

14,645,988

 

 

14,599,136

 

 

14,669,709

 

 

14,608,591

Diluted

 

 

14,682,082

 

 

14,711,737

 

 

14,721,063

 

 

14,713,552

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Net Income to Non-GAAP Operating Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

1,949

 

$

6,192

 

$

6,613

 

$

21,931

Exclusions from net income:

 

 

 

 

 

 

 

 

 

 

 

 

Net realized gains on investments

 

 

(270)

 

 

(1,251)

 

 

(1,111)

 

 

(8,613)

Change in net unrealized gains on equity securities

 

 

9,184

 

 

14,364

 

 

2,148

 

 

56,283

Credit loss expense

 

 

(403)

 

 

207

 

 

554

 

 

207

Income tax expense on exclusions from net income

 

 

(1,787)

 

 

(2,797)

 

 

(334)

 

 

(10,054)

Non-GAAP operating income

 

$

8,673

 

$

16,715

 

$

7,870

 

$

59,754

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per diluted share

 

$

0.13

 

$

0.42

 

$

0.45

 

$

1.48

Exclusions from net income:

 

 

 

 

 

 

 

 

 

 

 

 

Net realized gains on investments

 

 

(0.02)

 

 

(0.09)

 

 

(0.08)

 

 

(0.59)

Change in net unrealized gains on equity securities

 

 

0.63

 

 

0.98

 

 

0.15

 

 

3.83

Credit loss expense

 

 

(0.03)

 

 

0.01

 

 

0.04

 

 

0.01

Income tax expense on exclusions from net income

 

 

(0.12)

 

 

(0.19)

 

 

(0.02)

 

 

(0.68)

Non-GAAP operating income per diluted share

 

$

0.59

 

$

1.13

 

$

0.54

 

$

4.05

Safety Insurance Group, Inc. and Subsidiaries

Additional Premium Information

(Unaudited)

(Dollars in thousands)

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2023

 

2022

 

2023

 

2022

Written Premiums

 

 

 

 

 

 

 

 

 

 

 

 

Direct

 

$

267,124

 

$

217,878

 

$

745,133

 

$

621,947

Assumed

 

 

7,472

 

 

6,460

 

 

23,230

 

 

21,168

Ceded

 

 

(23,509)

 

 

(18,910)

 

 

(69,423)

 

 

(56,911)

Net written premiums

 

$

251,087

 

$

205,428

 

$

698,940

 

$

586,204

 

 

 

 

 

 

 

 

 

 

 

 

 

Earned Premiums

 

 

 

 

 

 

 

 

 

 

 

 

Direct

 

$

231,249

 

$

202,190

 

$

654,085

 

$

597,662

Assumed

 

 

6,839

 

 

6,497

 

 

22,357

 

 

21,835

Ceded

 

 

(23,663)

 

 

(18,756)

 

 

(68,057)

 

 

(54,145)

Net earned premiums

 

$

214,425

 

$

189,931

 

$

608,385

 

$

565,352

 

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