SAFT Safety Insurance Group Inc

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

George M. Murphy, President and Chief Executive Officer, commented: “The insurance industry continues to experience strong headwinds as operating results are adversely impacted by economic and inflationary trends coupled with rising interest rates that negatively impact our investment portfolio. For the quarter ending June 30, 2022, we have posted a combined ratio of 92.1%, which demonstrates our strong underwriting discipline and focus on expense management. During the quarter, we also reduced a COVID-19 related legal expense reserve of $6.5 million based on the recent Supreme Court of Massachusetts decision, as described below.”

Net income for the quarter ended June 30, 2022 was $7.9 million, or $0.53 per diluted share, compared to net income of $37.7 million, or $2.49 per diluted share, for the comparable 2021 period. Net income for the six months ended June 30, 2022 was $15.7 million, or $1.06 per diluted share, compared to net income of $73.8 million, or $4.93 per diluted share, for the comparable 2021 period. The decrease is largely due to the change in net unrealized gains on equity securities of $41.9 million for the six months ended June 30, 2022.

Non-generally accepted accounting principles (“non-GAAP”) operating income, as defined below, for the quarter ended June 30, 2022 was $1.91 per diluted share, compared to $1.85 per diluted share, for the comparable 2021 period. Non-GAAP operating income for the six months ended June 30, 2022 was $2.92 per diluted share, compared to $3.78 per diluted share, for the comparable 2021 period.

Safety’s book value per share decreased to $55.54 at June 30, 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 $86.5 million. Additional decreases in book value resulted from capital allocation activities, specifically dividends paid, and shares repurchased during the first quarter of 2022. Safety paid $0.90 per share in dividends to investors during the quarters ended June 30, 2022 and 2021, respectively. Safety paid $3.60 per share in dividends to investors during the year ended December 31, 2021.

Today, our Board of Directors approved a $0.90 per share quarterly cash dividend on its issued and outstanding common stock payable on September 15, 2022 to shareholders of record at the close of business on September 1, 2022.

Direct written premiums for the quarter ended June 30, 2022 decreased by $2.6 million, or 1.2%, to $214.6 million from $217.2 million for the comparable 2021 period. Direct written premiums for the six months ended June 30, 2022 decreased by $5.4 million, or 1.3% to $404.1 million from $409.5 million for the comparable 2021 period. The decrease is primarily in our private passenger automobile line of business and is a result of a decrease in policy counts.

For the quarter ended June 30, 2022, losses and loss adjustment expenses incurred increased by $2.5 million, or 2.3%, to $112.7 million from $110.2 million for the comparable 2021 period. For the six months ended June 30, 2022, losses and loss adjustment expenses incurred increased by $14.2 million, or 6.4%, to $235.9 million from $221.7 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 including inflation and supply chain delays.

Loss, expense, and combined ratios calculated for the quarter ended June 30, 2022 were 59.8%, 32.3%, and 92.1%, respectively, compared to 56.7%, 33.5%, and 90.2%, respectively, for the comparable 2021 period. Loss, expense, and combined ratios calculated for the six months ended June 30, 2022 were 62.8%, 32.6%, and 95.4%, respectively, compared to 57.3%, 33.6%, and 90.9%, 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 June 30, 2022 was $16.9 million compared to $13.3 million for the comparable 2021 period. Total prior year favorable development included in the pre-tax results for the six months ended June 30, 2022 was $29.3 million compared to $25.8 million for the comparable 2021 period.

The Company had been named in named in a lawsuit alleging that the Company improperly denied coverage to commercial insureds for loss of business income resulting from the COVID-19 pandemic. On April 21, 2022, the Massachusetts Supreme Judicial court (“SJC”), the state’s highest-level court, issued its decision in Verveine Corp. v. Strathmore; in which it confirmed the decision of the original trial court’s dismissal of the insureds’ business interruption claims against Strathmore Insurance on the grounds that the presence of the coronavirus on the insured premises did not constitute “direct physical loss of or damage to” property. Shortly after SJC’s ruling, the claim against the Company closed and the accrued reserve of $6.5 million for legal defense costs was reversed.

Net investment income for the quarter ended June 30, 2022 increased by $1.8 million, or 19.0%, to $11.6 million from $9.8 million for the comparable 2021 period. Net investment income for the six months ended June 30, 2022 increased by $0.9 million, or 4.3%, to $22.2 million from $21.3 million for the comparable 2021 period. The increase is a result of an increase in the average invested asset balance and an increase in floating interest rates on our fixed maturities high yield portfolio compared to the prior year. Net effective annualized yield on the investment portfolio for the quarter ended June 30, 2022 was 3.2% compared to 2.7% for the comparable 2021 period. Net effective annualized yield on the investment portfolio for the six months ended June 30, 2022 was 3.0% compared to 2.9% for the comparable 2021 period. Our duration on fixed maturities was 3.7 years at June 30, 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 (losses) on investments, change in net unrealized gains on equity securities, credit loss benefit (expense) and taxes related thereto. For the three months June 30, 2022, a decrease of $28.9 million for the change in unrealized gains on equity securities was recognized within income before income taxes, compared to an increase of $8.6 million recognized in the comparable 2021 period. For the six months ended June 30, 2022, a decrease of $41.9 million for the change in unrealized gains on equity securities was recognized in income before income taxes, compared to an increase of $14.7 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, and Safety Northeast 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, 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 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)

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

Fixed maturities, available for sale, at fair value (amortized cost: $1,151,367 and $1,187,857, allowance for expected credit losses of $691 and $691)

 

$

1,072,241

 

 

$

1,218,279

 

Short term investments, at fair value (cost: $5 and $0)

 

 

5

 

 

 

—

 

Equity securities, at fair value (cost: $223,519 and $211,848)

 

 

234,697

 

 

 

264,945

 

Other invested assets

 

 

103,634

 

 

 

87,911

 

Total investments

 

 

1,410,577

 

 

 

1,571,135

 

Cash and cash equivalents

 

 

39,083

 

 

 

63,603

 

Accounts receivable, net of allowance for expected credit losses of $1,677 and $1,808

 

 

182,835

 

 

 

170,953

 

Receivable for securities sold

 

 

872

 

 

 

9,256

 

Accrued investment income

 

 

7,100

 

 

 

7,401

 

Taxes recoverable

 

 

16,153

 

 

 

1,508

 

Receivable from reinsurers related to paid loss and loss adjustment expenses

 

 

10,738

 

 

 

18,234

 

Receivable from reinsurers related to unpaid loss and loss adjustment expenses

 

 

88,538

 

 

 

90,667

 

Ceded unearned premiums

 

 

26,407

 

 

 

23,795

 

Deferred policy acquisition costs

 

 

73,518

 

 

 

73,024

 

Deferred income taxes

 

 

1,803

 

 

 

—

 

Equity and deposits in pools

 

 

36,369

 

 

 

33,592

 

Operating lease right-of-use-assets

 

 

25,348

 

 

 

27,115

 

Other assets

 

 

28,065

 

 

 

27,108

 

Total assets

 

$

1,947,406

 

 

$

2,117,391

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Loss and loss adjustment expense reserves

 

$

548,145

 

 

$

570,651

 

Unearned premium reserves

 

 

421,455

 

 

 

413,487

 

Accounts payable and accrued liabilities

 

 

54,663

 

 

 

76,598

 

Payable for securities purchased

 

 

5,192

 

 

 

16,477

 

Payable to reinsurers

 

 

13,343

 

 

 

9,192

 

Deferred income taxes

 

 

—

 

 

 

15,240

 

Debt

 

 

30,000

 

 

 

30,000

 

Operating lease liabilities

 

 

25,348

 

 

 

27,115

 

Other liabilities

 

 

30,637

 

 

 

31,458

 

Total liabilities

 

 

1,128,783

 

 

 

1,190,218

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

Common stock: $0.01 par value; 30,000,000 shares authorized; 17,881,694 and 17,813,370 shares issued

 

 

179

 

 

 

178

 

Additional paid-in capital

 

 

219,453

 

 

 

216,070

 

Accumulated other comprehensive (loss) income, net of taxes

 

 

(61,964

)

 

 

24,579

 

Retained earnings

 

 

810,955

 

 

 

821,743

 

Treasury stock, at cost: 3,141,477 and 2,970,573 shares

 

 

(150,000

)

 

 

(135,397

)

Total shareholders’ equity

 

 

818,623

 

 

 

927,173

 

Total liabilities and shareholders’ equity

 

$

1,947,406

 

 

$

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 June 30,

 

Six Months Ended June 30,

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earned premiums

 

$

188,333

 

 

$

194,297

 

 

$

375,421

 

 

$

387,147

 

Net investment income

 

 

11,635

 

 

 

9,774

 

 

 

22,225

 

 

 

21,306

 

Earnings from partnership investments

 

 

5,967

 

 

 

2,614

 

 

 

8,799

 

 

 

6,905

 

Net realized gains on investments

 

 

3,152

 

 

 

3,406

 

 

 

7,362

 

 

 

6,281

 

Change in net unrealized gains on equity securities

 

 

(28,885

)

 

 

8,654

 

 

 

(41,919

)

 

 

14,861

 

Credit loss (expense) benefit

 

 

—

 

 

 

193

 

 

 

—

 

 

 

374

 

Finance and other service income

 

 

3,403

 

 

 

3,937

 

 

 

6,720

 

 

 

7,909

 

Total revenue

 

 

183,605

 

 

 

222,875

 

 

 

378,608

 

 

 

444,783

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Losses and loss adjustment expenses

 

 

112,715

 

 

 

110,161

 

 

 

235,881

 

 

 

221,656

 

Underwriting, operating and related expenses

 

 

60,872

 

 

 

65,089

 

 

 

122,466

 

 

 

130,113

 

Interest expense

 

 

131

 

 

 

130

 

 

 

260

 

 

 

259

 

Total expenses

 

 

173,718

 

 

 

175,380

 

 

 

358,607

 

 

 

352,028

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

9,887

 

 

 

47,495

 

 

 

20,001

 

 

 

92,755

 

Income tax expense

 

 

1,986

 

 

 

9,828

 

 

 

4,262

 

 

 

18,914

 

Net income

 

$

7,901

 

 

$

37,667

 

 

$

15,739

 

 

$

73,841

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per weighted average common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.54

 

 

$

2.50

 

 

$

1.07

 

 

$

4.96

 

Diluted

 

$

0.53

 

 

$

2.49

 

 

$

1.06

 

 

$

4.93

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends paid per common share

 

$

0.90

 

 

$

0.90

 

 

$

1.80

 

 

$

1.80

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of shares used in computing earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

14,599,057

 

 

 

14,983,365

 

 

 

14,613,399

 

 

 

14,817,312

 

Diluted

 

 

14,702,627

 

 

 

15,079,495

 

 

 

14,715,099

 

 

 

14,913,561

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Net Income to Non-GAAP Operating Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

7,901

 

 

$

37,667

 

 

$

15,739

 

 

$

73,841

 

Exclusions from net income:

 

 

 

 

 

 

 

 

 

 

 

 

Net realized gains on investments

 

 

(3,152

)

 

 

(3,406

)

 

 

(7,362

)

 

 

(6,281

)

Change in net unrealized gains on equity securities

 

 

28,885

 

 

 

(8,654

)

 

 

41,919

 

 

 

(14,861

)

Credit loss (benefit) expense

 

 

-

 

 

 

(193

)

 

 

-

 

 

 

(374

)

Income tax expense on exclusions from net income

 

 

(5,404

)

 

 

2,573

 

 

 

(7,257

)

 

 

4,518

 

Non-GAAP operating income

 

$

28,230

 

 

$

27,987

 

 

$

43,039

 

 

$

56,843

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per diluted share

 

$

0.53

 

 

$

2.49

 

 

$

1.06

 

 

$

4.93

 

Exclusions from net income:

 

 

 

 

 

 

 

 

 

 

 

 

Net realized gains on investments

 

 

(0.21

)

 

 

(0.23

)

 

 

(0.50

)

 

 

(0.42

)

Change in net unrealized gains on equity securities

 

 

1.96

 

 

 

(0.57

)

 

 

2.85

 

 

 

(1.00

)

Credit loss (benefit) expense

 

 

-

 

 

 

(0.01

)

 

 

-

 

 

 

(0.03

)

Income tax expense on exclusions from net income

 

 

(0.37

)

 

 

0.17

 

 

 

(0.49

)

 

 

0.30

 

Non-GAAP operating income per diluted share

 

$

1.91

 

 

$

1.85

 

 

$

2.92

 

 

$

3.78

 

 

Safety Insurance Group, Inc. and Subsidiaries

Additional Premium Information

(Unaudited)

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Written Premiums

 

 

 

 

 

 

 

 

 

 

 

 

Direct

 

$

214,576

 

 

$

217,233

 

 

$

404,069

 

 

$

409,470

 

Assumed

 

 

7,967

 

 

 

8,429

 

 

 

14,708

 

 

 

15,760

 

Ceded

 

 

(19,819

)

 

 

(18,836

)

 

 

(38,001

)

 

 

(34,186

)

Net written premiums

 

$

202,724

 

 

$

206,826

 

 

$

380,776

 

 

$

391,044

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earned Premiums

 

 

 

 

 

 

 

 

 

 

 

 

Direct

 

$

198,953

 

 

$

202,964

 

 

$

395,472

 

 

$

404,019

 

Assumed

 

 

7,584

 

 

 

7,970

 

 

 

15,338

 

 

 

15,997

 

Ceded

 

 

(18,204

)

 

 

(16,637

)

 

 

(35,389

)

 

 

(32,869

)

Net earned premiums

 

$

188,333

 

 

$

194,297

 

 

$

375,421

 

 

$

387,147

 

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20220803005945/en/

Safety Insurance Group, Inc. Office of Investor Relations 877-951-2522 InvestorRelations@SafetyInsurance.com