Business Wire | Nov 3, 2021 04:06PM EDT

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

Nov. 03, 2021

BOSTON--(BUSINESS WIRE)--Nov. 03, 2021--Safety Insurance Group, Inc. (NASDAQ:SAFT) ("the Company") today reported third quarter 2021 results.

Net income for the quarter ended September 30, 2021 was $24.8 million, or $1.64 per diluted share, compared to net income of $44.7 million, or $2.96 per diluted share, for the comparable 2020 period. Net income for the nine months ended September 30, 2021 was $98.7 million, or $6.58 per diluted share, compared to net income of $85.2 million, or $5.58 per diluted share, for the comparable 2020 period. Non-generally accepted accounting principles ("non-GAAP") operating income, as defined below, for the quarter ended September 30, 2021 was $1.70 per diluted share, compared to $2.53 per diluted share, for the comparable 2020 period. Non-GAAP operating income for the nine months ended September 30, 2021 was $5.51 per diluted share, compared to $6.02 per diluted share, for the comparable 2020 period.

Safety's book value per share increased to $61.94 at September 30, 2021 from $59.40 at December 31, 2020. Safety paid $0.90 per share in dividends to investors during the quarters ended September 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 September 30, 2021 decreased by $2.3 million, or 1.1%, to $211.1 million from $213.4 million for the comparable 2020 period. Direct written premiums for the nine months ended September 30, 2021 increased by $4.5 million, or 0.7% to $620.6 million from $616.1 million for the comparable 2020 period. The nine months ended September 30, 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 September 30, 2021 decreased by $3.1 million, or 1.5%, to $202.6 million from $205.7 million for the comparable 2020 period. Net written premiums for the nine months ended September 30, 2021 increased by $1.1 million, or 0.2%, to $593.6 million from $592.5 million for the comparable 2020 period. Net earned premiums for the quarter ended September 30, 2021 decreased by $0.4 million, or 0.2%, to $194.4 million from $194.8 million for the comparable 2020 period. Net earned premiums for the nine months ended September 30, 2021 increased by $6.9 million, or 1.2%, to $581.5 million from $574.6 million for the comparable 2020 period. The changes in both periods are a result of the changes in direct written premiums as described above.

For the quarter ended September 30, 2021, losses and loss adjustment expenses incurred increased by $22.0 million, or 22.7%, to $119.1 million from $97.1 million for the comparable 2020 period. For the nine months ended September 30, 2021, losses and loss adjustment expenses incurred increased by $32.0 million, or 10.4%, to $340.8 million from $308.8 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 September 30, 2021 was $15.4 million compared to $15.3 million for the comparable 2020 period. Total prior year favorable development included in the pre-tax results for the nine months ended September 30, 2021 was $41.2 million compared to $34.6 million for the comparable 2020 period.

Loss, expense, and combined ratios calculated under U.S. generally accepted accounting principles for the quarter ended September 30, 2021 were 61.3%, 32.6%, and 93.9%, respectively, compared to 49.8%, 35.2%, and 85.0%, respectively, for the comparable 2020 period. Loss, expense, and combined ratios calculated under U.S. generally accepted accounting principles for the nine months ended September 30, 2021 were 58.6%, 33.3%, and 91.9%, respectively, compared to 53.7%, 34.0%, and 87.7%, respectively, for the comparable 2020 period.

Net investment income for the quarter ended September 30, 2021 increased by $1.4 million, or 14.3%, to $11.1 million from $9.7 million for the comparable 2020 period. Net investment income for the nine months ended September 30, 2021 increased by $2.1 million, or 6.8%, to $32.4 million from $30.3 million for the comparable 2020 period. The increase in both periods is a result of an increase in the average invested asset balance and an increase in the equity in earnings of other invested assets compared to the prior year. Net effective annualized yield on the investment portfolio for the quarter ended September 30, 2021 was 3.1% compared to 2.8% for the comparable 2020 period. Net effective annualized yield on the investment portfolio for the nine months ended September 30, 2021 was 3.0% compared to 2.9% for the comparable 2020 period. Our duration on fixed maturities was 3.5 years at September 30, 2021 compared to 3.2 years at 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 December 15, 2021 to shareholders of record at the close of business on December 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 (expense) benefit and taxes related thereto. For the three months ended September 30, 2021, a decrease of $3.4 million for the change in unrealized gains on equity securities was recognized within income before income taxes, compared to an increase of $7.5 million recognized in the comparable 2020 period. For the nine months ended September 30, 2021, an increase of $11.4 million for the change in unrealized gains on equity securities was recognized in income before income taxes, compared to a decrease of $5.6 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)



September December 30, 31,

2021 2020

(Unaudited)

Assets

Investments:

Fixed maturities, available for sale, at fair value(amortized cost: $1,235,207 and $1,189,951, $ 1,277,402 $ 1,256,653allowance for expected credit losses of $729 and$1,054)

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

Equity securities, at fair value (cost: $204,243 252,623 205,254and $168,289)

Other invested assets 66,323 45,239

Total investments 1,596,348 1,507,587

Cash and cash equivalents 44,703 53,769

Accounts receivable, net of allowance for expected 183,774 179,147credit losses of $2,409 and $1,754

Receivable for securities sold 7,113 1,311

Accrued investment income 9,289 8,045

Taxes recoverable - 279

Receivable from reinsurers related to paid loss and 11,269 13,432loss adjustment expenses

Receivable from reinsurers related to unpaid loss 99,248 106,311and loss adjustment expenses

Ceded unearned premiums 22,567 22,406

Deferred policy acquisition costs 76,445 74,962

Equity and deposits in pools 38,955 30,429

Operating lease right-of-use-assets 27,313 31,000

Other assets 27,704 25,595

Total assets $ 2,144,728 $ 2,054,273



Liabilities

Loss and loss adjustment expense reserves $ 578,547 $ 567,581

Unearned premium reserves 434,167 421,901

Accounts payable and accrued liabilities 64,413 79,486

Payable for securities purchased 28,224 7,144

Payable to reinsurers 18,623 8,236

Deferred income taxes 11,561 17,611

Taxes payable 2,643 -

Debt 30,000 30,000

Operating lease liabilities 27,313 31,000

Other liabilities 21,160 6,635

Total liabilities 1,216,651 1,169,594





Shareholders' equity

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

Additional paid-in capital 214,576 209,779

Accumulated other comprehensive income, net of 33,909 53,527taxes

Retained earnings 803,248 745,029

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

Total shareholders' equity 928,077 884,679

Total liabilities and shareholders' equity $ 2,144,728 $ 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 September 30,

Nine Months Ended September 30,

2021

2020

2021

2020

Net earned premiums

$

194,395

$

194,843

$

581,542

$

574,640

Net investment income

11,112

9,718

32,418

30,344

Earnings from partnership investments

5,720

4,699

12,625

2,589

Net realized gains (losses) on investments

2,226

669

8,507

(683)

Change in net unrealized gains on equity securities

(3,447)

7,521

11,414

(5,639)

Credit loss (expense) benefit

(49)

182

325

(2,289)

Finance and other service income

3,751

4,768

11,660

12,252

Total revenue

213,708

222,400

658,491

611,214

Losses and loss adjustment expenses

119,129

97,054

340,785

308,774

Underwriting, operating and related expenses

63,291

68,596

193,404

195,192

Interest expense

131

131

390

308

Total expenses

182,551

165,781

534,579

504,274

Income before income taxes

31,157

56,619

123,912

106,940

Income tax expense

6,337

11,877

25,251

21,694

Net income

$

24,820

$

44,742

$

98,661

$

85,246

Earnings per weighted average common share:

Basic

$

1.65

$

2.99

$

6.63

$

5.62

Diluted

$

1.64

$

2.96

$

6.58

$

5.58

Cash dividends paid per common share

$

0.90

$

0.90

$

2.70

$

2.70

Number of shares used in computing earnings per share:

Basic

14,982,405

14,907,809

14,826,515

15,085,914

Diluted

15,080,029

15,030,277

14,922,870

15,204,155

Reconciliation of Net Income to Non-GAAP Operating Income

Net income

$

24,820

$

44,742

$

98,661

$

85,246

Exclusions from net income:

Net realized (gains) losses on investments

(2,226)

(669)

(8,507)

683

Change in net unrealized gains on equity securities

3,447

(7,521)

(11,414)

5,639

Credit loss expense (benefit)

49

(182)

(325)

2,289

Income tax (benefit) expense on exclusions from net income

(267)

1,758

4,252

(1,808)

Non-GAAP operating income

$

25,823

$

38,128

$

82,667

$

92,049

Net income per diluted share

$

1.64

$

2.96

$

6.58

$

5.58

Exclusions from net income:

Net realized (gains) losses on investments

(0.15)

(0.04)

(0.57)

0.04

Change in net unrealized gains on equity securities

0.23

(0.50)

(0.76)

0.37

Credit loss expense (benefit)

-

(0.01)

(0.02)

0.15

Income tax (benefit) expense on exclusions from net income

(0.02)

0.12

0.28

(0.12)

Non-GAAP operating income per diluted share

$

1.70

$

2.53

$

5.51

$

6.02

Safety Insurance Group, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

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



Three Months Ended Nine Months Ended September 30, September 30,

2021 2020 2021 2020



Net earned premiums $ 194,395 $ 194,843 $ 581,542 $ 574,640

Net investment 11,112 9,718 32,418 30,344income

Earnings frompartnership 5,720 4,699 12,625 2,589investments

Net realized gains(losses) on 2,226 669 8,507 (683)investments

Change in netunrealized gains on (3,447) 7,521 11,414 (5,639)equity securities

Credit loss (49) 182 325 (2,289)(expense) benefit

Finance and other 3,751 4,768 11,660 12,252service income

Total revenue 213,708 222,400 658,491 611,214



Losses and loss 119,129 97,054 340,785 308,774adjustment expenses

Underwriting,operating and 63,291 68,596 193,404 195,192related expenses

Interest expense 131 131 390 308

Total expenses 182,551 165,781 534,579 504,274



Income before 31,157 56,619 123,912 106,940income taxes

Income tax expense 6,337 11,877 25,251 21,694

Net income $ 24,820 $ 44,742 $ 98,661 $ 85,246



Earnings perweighted average common share:

Basic $ 1.65 $ 2.99 $ 6.63 $ 5.62

Diluted $ 1.64 $ 2.96 $ 6.58 $ 5.58



Cash dividends paid $ 0.90 $ 0.90 $ 2.70 $ 2.70per common share



Number of sharesused in computing earnings per share:

Basic 14,982,405 14,907,809 14,826,515 15,085,914

Diluted 15,080,029 15,030,277 14,922,870 15,204,155





Reconciliation ofNet Income to Non-GAAP OperatingIncome



Net income $ 24,820 $ 44,742 $ 98,661 $ 85,246

Exclusions from net income:

Net realized(gains) losses on (2,226) (669) (8,507) 683investments

Change in netunrealized gains on 3,447 (7,521) (11,414) 5,639equity securities

Credit loss expense 49 (182) (325) 2,289(benefit)

Income tax(benefit) expense (267) 1,758 4,252 (1,808)on exclusions fromnet income

Non-GAAP operating $ 25,823 $ 38,128 $ 82,667 $ 92,049income



Net income per $ 1.64 $ 2.96 $ 6.58 $ 5.58diluted share

Exclusions from net income:

Net realized(gains) losses on (0.15) (0.04) (0.57) 0.04investments

Change in netunrealized gains on 0.23 (0.50) (0.76) 0.37equity securities

Credit loss expense - (0.01) (0.02) 0.15(benefit)

Income tax(benefit) expense (0.02) 0.12 0.28 (0.12)on exclusions fromnet income

Non-GAAP operatingincome per diluted $ 1.70 $ 2.53 $ 5.51 $ 6.02share

Safety Insurance Group, Inc. and Subsidiaries

Additional Premium Information

(Unaudited)

(Dollars in thousands)

Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

2021

2020

Written Premiums

Direct

$

211,098

$

213,438

$

620,568

$

616,085

Assumed

7,585

5,675

23,345

20,781

Ceded

(16,079)

(13,355)

(50,265)

(44,414)

Net written premiums

$

202,604

$

205,758

$

593,648

$

592,452

Earned Premiums

Direct

$

204,429

$

205,421

$

608,448

$

608,517

Assumed

7,202

6,542

23,199

23,411

Ceded

(17,236)

(17,120)

(50,105)

(57,288)

Net earned premiums

$

194,395

$

194,843

$

581,542

$

574,640

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