Business Wire | Aug 4, 2021 04:06PM EDT

Safety Announces Second Quarter 2021 Results and Declares Third Quarter 2021 Dividend

Aug. 04, 2021

BOSTON--(BUSINESS WIRE)--Aug. 04, 2021--Safety Insurance Group, Inc. (NASDAQ:SAFT) ("the Company") today reported second quarter 2021 results.

Net income for the quarter ended June 30, 2021 was $37.7 million, or $2.49 per diluted share, compared to net income of $42.5 million, or $2.78 per diluted share, for the comparable 2020 period. Net income for the six months ended June 30, 2021 was $73.8 million, or $4.93 per diluted share, compared to net income of $40.5 million, or $2.64 per diluted share, for the comparable 2020 period. Non-generally accepted accounting principles ("non-GAAP") operating income, as defined below, for the quarter ended June 30, 2021 was $1.85 per diluted share, compared to $1.95 per diluted share, for the comparable 2020 period. Non-GAAP operating income for the six months ended June 30, 2021 was $3.78 per diluted share, compared to $3.52 per diluted share, for the comparable 2020 period.

Safety's book value per share increased to $61.43 at June 30, 2021 from $59.40 at December 31, 2020. Safety paid $0.90 per share in dividends to investors during the quarters ended June 30, 2021 and 2020, respectively. Safety paid $3.60 per share in dividends to investors during the year ended December 31, 2020.

Direct written premiums for the quarter ended June 30, 2021 increased by $11.9 million, or 5.8%, to $217.2 million from $205.3 million for the comparable 2020 period. Direct written premiums for the six months ended June 30, 2021 increased by $6.9 million, or 1.7% to $409.5 million from $402.6 million for the comparable 2020 period. The 2020 direct written premium reflects the Safety Personal Auto Relief Credit, a 15% policyholder credit that was applied to personal auto policies for the months of April, May and June 2020 and was booked as an adjustment to premiums during the second quarter of 2020.

Net written premiums for the quarter ended June 30, 2021 increased by $9.1 million, or 4.6%, to $206.8 million from $197.7 million for the comparable 2020 period. Net written premiums for the six months ended June 30, 2021 increased by $4.4 million, or 1.1%, to $391.0 million from $386.6 million for the comparable 2020 period. Net earned premiums for the quarter ended June 30, 2021 increased by $12.4 million, or 6.8%, to $194.3 million from $181.9 million for the comparable 2020 period. Net earned premiums for the six months ended June 30, 2021 increased by $7.4 million, or 1.9%, to $387.1 million from $379.7 million for the comparable 2020 period. The increases in both periods are a result of the increase in direct written premiums as described above.

For the quarter ended June 30, 2021, losses and loss adjustment expenses incurred increased by $19.2 million, or 21.1%, to $110.2 million from $91.0 million for the comparable 2020 period. For the six months ended June 30, 2021, losses and loss adjustment expenses incurred increased by $10.0 million, or 4.7%, to $221.7 million from $211.7 million for the comparable 2020 period. The 2020 losses and loss adjustment expenses in both periods reflect a decrease in frequency, primarily in our private passenger automobile line of business as a result of the COVID-19 pandemic.

Total prior year favorable development included in the pre-tax results for the quarter ended June 30, 2021 was $13.3 million compared to $9.7 million for the comparable 2020 period. Total prior year favorable development included in the pre-tax results for the six months ended June 30, 2021 was $25.8 million compared to $19.3 million for the comparable 2020 period.

Loss, expense, and combined ratios calculated under U.S. generally accepted accounting principles for the quarter ended June 30, 2021 were 56.7%, 33.5%, and 90.2%, respectively, compared to 50.0%, 34.9%, and 84.9%, respectively, for the comparable 2020 period. Loss, expense, and combined ratios calculated under U.S. generally accepted accounting principles for the six months ended June 30, 2021 were 57.3%, 33.6%, and 90.9%, respectively, compared to 55.7%, 33.3%, and 89.0%, respectively, for the comparable 2020 period.

Net investment income for the quarter ended June 30, 2021 decreased by $0.1 million, or 1.4%, to $9.8 million from $9.9 million for the comparable 2020 period. The decrease is a result of lower yields on our fixed maturity assets compared to the prior year. Net investment income for the six months ended June 30, 2021 increased by $0.7 million, or 3.3%, to $21.3 million from $20.6 million for the comparable 2020 period. The increase is a result of an increase in the average invested asset balance compared to the prior year. Net effective annualized yield on the investment portfolio for the quarter ended June 30, 2021 was 2.7% compared to 2.9% for the comparable 2020 period. Net effective annualized yield on the investment portfolio for the six months ended June 30, 2021 was 2.9% compared to 3.0% for the comparable 2020 period. Our duration on fixed maturities was 3.2 years at June 30, 2021 and December 31, 2020, respectively.

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, 2021 to shareholders of record at the close of business on September 1, 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 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 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 ended June 30, 2021, an increase of $8.6 million for the change in unrealized gains on equity securities was recognized within income before income taxes, compared to an increase of $16.8 million recognized in the comparable 2020 period. For the six months ended June 30, 2021, an increase of $14.9 million for the change in unrealized gains on equity securities was recognized in income before income taxes, compared to a decrease of $13.2 million recognized in the comparable 2020 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, 2020 Form 10-K with the SEC on February 26, 2021 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; * Our possible need for and availability of additional financing, and our dependence on strategic relationships, among others; * The effects of emerging claim and coverage issues on the Company's business are uncertain, and court decisions or legislative or regulatory changes that take place after the Company issues its policies, including those taken in response to COVID-19 (such as requiring insurers to cover business interruption claims irrespective of terms or other conditions included in the policies that would otherwise preclude coverage), can result in an unexpected increase in the number of claims and have a material adverse impact on the Company's results of operations; * The possibility that civil litigation and/or the Commissioner may require additional premium relief payouts related to COVID-19; * The impact of COVID-19 and related risks, including on the Company's employees, agents or other key partners, could materially affect the Company's results of operations, financial position and/or liquidity; 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, 2020 filed with the SEC on February 26, 2021.

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,

2021 2020

(Unaudited)

Assets

Investments:

Fixed maturities, available for sale, at fairvalue (amortized cost: $1,187,050 and $ 1,235,680 $ 1,256,653 $1,189,951, allowance for expected creditlosses of $680 and $1,054)

Short term investments, at fair value (cost: $0 - 441 and $441)

Equity securities, at fair value (cost: 233,114 205,254 $181,287 and $168,289)

Other invested assets 52,580 45,239

Total investments 1,521,374 1,507,587

Cash and cash equivalents 82,364 53,769

Accounts receivable, net of allowance for 183,222 179,147 expected credit losses of $2,192 and $1,754

Receivable for securities sold 12,598 1,311

Accrued investment income 7,307 8,045

Taxes recoverable - 279

Receivable from reinsurers related to paid loss 10,389 13,432 and loss adjustment expenses

Receivable from reinsurers related to unpaid 101,107 106,311 loss and loss adjustment expenses

Ceded unearned premiums 23,725 22,406

Deferred policy acquisition costs 74,432 74,962

Equity and deposits in pools 34,765 30,429

Operating lease right-of-use-assets 28,573 31,000

Other assets 28,047 25,595

Total assets $ 2,107,903 $ 2,054,273



Liabilities

Loss and loss adjustment expense reserves $ 576,951 $ 567,581

Unearned premium reserves 427,115 421,901

Accounts payable and accrued liabilities 58,247 79,486

Payable for securities purchased 26,259 7,144

Payable to reinsurers 11,214 8,236

Deferred income taxes 11,915 17,611

Taxes payable 4,965 -

Debt 30,000 30,000

Operating lease liabilities 28,573 31,000

Other liabilities 12,365 6,635

Total liabilities 1,187,604 1,169,594





Shareholders' equity

Common stock: $0.01 par value; 30,000,000shares authorized; 17,813,573 and 17,724,866 178 178 shares issued

Additional paid-in capital 213,079 209,779

Accumulated other comprehensive income, net of 38,955 53,527 taxes

Retained earnings 791,921 745,029

Treasury stock, at cost: 2,831,168 shares (123,834 ) (123,834 )

Total shareholders' equity 920,299 884,679

Total liabilities and shareholders' equity $ 2,107,903 $ 2,054,273

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,

2021

2020

2021

2020

Net earned premiums

$

194,297

$

181,902

$

387,147

$

379,797

Net investment income

9,774

9,916

21,306

20,626

Earnings (losses) from partnership investments

2,614

(3,449

)

6,905

(2,110

)

Net realized gains (losses) on investments

3,406

(721

)

6,281

(1,352

)

Change in net unrealized gains on equity securities

8,654

16,828

14,861

(13,160

)

Credit loss benefit (expense)

193

39

374

(2,471

)

Finance and other service income

3,937

3,255

7,909

7,484

Total revenue

222,875

207,770

444,783

388,814

Losses and loss adjustment expenses

110,161

90,974

221,656

211,720

Underwriting, operating and related expenses

65,089

63,514

130,113

126,596

Interest expense

130

130

259

177

Total expenses

175,380

154,618

352,028

338,493

Income before income taxes

47,495

53,152

92,755

50,321

Income tax expense

9,828

10,658

18,914

9,817

Net income

$

37,667

$

42,494

$

73,841

$

40,504

Earnings per weighted average common share:

Basic

$

2.50

$

2.80

$

4.96

$

2.66

Diluted

$

2.49

$

2.78

$

4.93

$

2.64

Cash dividends paid per common share

$

0.90

$

0.90

$

1.80

$

1.80

Number of shares used in computing earnings per share:

Basic

14,983,365

15,120,039

14,817,312

15,175,409

Diluted

15,079,495

15,237,295

14,913,561

15,292,186

Reconciliation of Net Income to Non-GAAP Operating Income

Net income

$

37,667

$

42,494

$

73,841

$

40,504

Exclusions from net income:

Net realized (gains) losses on investments

(3,406

)

721

(6,281

)

1,352

Change in net unrealized gains on equity securities

(8,654

)

(16,828

)

(14,861

)

13,160

Credit loss (benefit) expense

(193

)

(39

)

(374

)

2,471

Income tax expense (benefit) on exclusions from net income

2,573

3,391

4,518

(3,566

)

Non-GAAP operating income

$

27,987

$

29,739

$

56,843

$

53,921

Net income per diluted share

$

2.49

$

2.78

$

4.93

$

2.64

Exclusions from net income:

Net realized (gains) losses on investments

(0.23

)

0.05

(0.42

)

0.09

Change in net unrealized gains on equity securities

(0.57

)

(1.10

)

(1.00

)

0.86

Credit loss (benefit) expense

(0.01

)

-

(0.03

)

0.16

Income tax expense (benefit) on exclusions from net income

0.17

0.22

0.30

(0.23

)

Non-GAAP operating income per diluted share

$

1.85

$

1.95

$

3.78

$

3.52

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,

2021 2020 2021 2020



Net earned $ 194,297 $ 181,902 $ 387,147 $ 379,797 premiums

Netinvestment 9,774 9,916 21,306 20,626 income

Earnings(losses) from 2,614 (3,449 ) 6,905 (2,110 )partnershipinvestments

Net realizedgains 3,406 (721 ) 6,281 (1,352 )(losses) oninvestments

Change in netunrealizedgains on 8,654 16,828 14,861 (13,160 )equitysecurities

Credit lossbenefit 193 39 374 (2,471 )(expense)

Finance andother service 3,937 3,255 7,909 7,484 income

Total revenue 222,875 207,770 444,783 388,814



Losses andloss 110,161 90,974 221,656 211,720 adjustmentexpenses

Underwriting,operating and 65,089 63,514 130,113 126,596 relatedexpenses

Interest 130 130 259 177 expense

Total 175,380 154,618 352,028 338,493 expenses



Income before 47,495 53,152 92,755 50,321 income taxes

Income tax 9,828 10,658 18,914 9,817 expense

Net income $ 37,667 $ 42,494 $ 73,841 $ 40,504



Earnings perweighted averagecommon share:

Basic $ 2.50 $ 2.80 $ 4.96 $ 2.66

Diluted $ 2.49 $ 2.78 $ 4.93 $ 2.64



Cashdividends $ 0.90 $ 0.90 $ 1.80 $ 1.80 paid percommon share



Number ofshares usedin computing earnings pershare:

Basic 14,983,365 15,120,039 14,817,312 15,175,409

Diluted 15,079,495 15,237,295 14,913,561 15,292,186



Reconciliation of Net Income to Non-GAAP Operating Income



Net income $ 37,667 $ 42,494 $ 73,841 $ 40,504

Exclusionsfrom net income:

Net realized(gains) (3,406 ) 721 (6,281 ) 1,352 losses oninvestments

Change in netunrealizedgains on (8,654 ) (16,828 ) (14,861 ) 13,160 equitysecurities

Credit loss(benefit) (193 ) (39 ) (374 ) 2,471 expense

Income taxexpense(benefit) on 2,573 3,391 4,518 (3,566 )exclusionsfrom netincome

Non-GAAPoperating $ 27,987 $ 29,739 $ 56,843 $ 53,921 income



Net incomeper diluted $ 2.49 $ 2.78 $ 4.93 $ 2.64 share

Exclusionsfrom net income:

Net realized(gains) (0.23 ) 0.05 (0.42 ) 0.09 losses oninvestments

Change in netunrealizedgains on (0.57 ) (1.10 ) (1.00 ) 0.86 equitysecurities

Credit loss(benefit) (0.01 ) - (0.03 ) 0.16 expense

Income taxexpense(benefit) on 0.17 0.22 0.30 (0.23 )exclusionsfrom netincome

Non-GAAPoperating $ 1.85 $ 1.95 $ 3.78 $ 3.52 income perdiluted share

Safety Insurance Group, Inc. and Subsidiaries

Additional Premium Information

(Unaudited)

(Dollars in thousands)

Three Months Ended June 30,

Six Months Ended June 30,

2021

2020

2021

2020

Written Premiums

Direct

$

217,233

$

205,301

$

409,470

$

402,647

Assumed

8,429

7,128

15,760

15,106

Ceded

(18,836

)

(14,693

)

(34,186

)

(31,059

)

Net written premiums

$

206,826

$

197,736

$

391,044

$

386,694

Earned Premiums

Direct

$

202,964

$

192,945

$

404,019

$

403,096

Assumed

7,970

7,767

15,997

16,869

Ceded

(16,637

)

(18,810

)

(32,869

)

(40,168

)

Net earned premiums

$

194,297

$

181,902

$

387,147

$

379,797

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