Safety Announces Second Quarter 2019 Results and Raises Third Quarter 2019 Dividend

About this update from Safety Insurance Group, Inc.

BOSTON --(BUSINESS WIRE)-- Safety Insurance Group, Inc. (NASDAQ:SAFT) today reported second quarter 2019 results. Net income for the quarter ended June 30, 2019 was $25.9 million , or $1.68 per diluted share, compared to net income of $26.8 million , or $1.75 per diluted share, for the comparable 2018 period. Net income for the six months ended June 30, 2019 was $55.9 million , or $3.63 per diluted share, compared to net income of $35.9 million , or $2.35 per diluted share, for the comparable 2018 period. Non-generally accepted accounting principles (“non-GAAP”) operating income, as defined below, for the quarter ended June 30, 2019 was $1.47 per diluted share, compared to $1.81 per diluted share, for the comparable 2018 period. Non-GAAP operating income for the six months ended June 30, 2019 was $2.83 per diluted share, compared to $2.52 per diluted share, for the comparable 2018 period. Safety’s book value per share increased to $50.90 at June 30, 2019 from $47.01 at December 31, 2018 . Safety paid $0.80 per share in dividends to investors during each of the quarters ended June 30, 2019 and 2018, respectively. Safety paid $3.20 per share in dividends to investors during the year ended December 31, 2018 . Today, our Board of Directors approved and declared an increase in the quarterly cash dividend from $0.80 to $0.90 per share on the issued and outstanding common stock payable on September 13, 2019 to shareholders of record at the close of business on September 3, 2019 . Direct written premiums for the quarter ended June 30, 2019 increased by $0.5 million , or 0.2%, to $233.6 million from $233.1 million for the comparable 2018 period. Direct written premiums for the six months ended June 30, 2019 increased by $0.2 million to $437.0 million from $436.8 million for the comparable 2018 period. The 2019 increase occurred primarily in our commercial automobile and homeowners lines of business. Net written premiums for the quarter ended June 30, 2019 increased by $1.8 million , or 0.8%, to $217.3 million from $215.5 million for the comparable 2018 period. Net written premiums for the six months ended June 30, 2019 increased by $1.7 million , or 0.4%, to $407.2 million from $405.5 million for the comparable 2018 period. Net earned premiums for the quarter ended June 30, 2019 increased by $2.3 million , or 1.2%, to $196.4 million from $194.1 million for the comparable 2018 period. Net earned premiums for the six months ended June 30, 2019 increased by $4.8 million , or 1.2%, to $390.9 million from $386.1 million for the comparable 2018 period. For the quarter ended June 30, 2019 , loss and loss adjustment expenses incurred increased by $9.2 million , or 8.1%, to $122.4 million from $113.2 million for the comparable 2018 period. For the six months ended June 30, 2019 , loss and loss adjustment expenses incurred decreased by $2.5 million , or 1.0%, to $248.4 million from $250.9 million for the comparable 2018 period. Loss, expense, and combined ratios calculated under U.S. generally accepted accounting principles for the quarter ended June 30, 2019 were 62.3%, 31.0%, and 93.3%, respectively, compared to 58.3%, 31.7%, and 90.0%, respectively, for the comparable 2018 period. Loss, expense, and combined ratios calculated under U.S. generally accepted accounting principles for the six months ended June 30, 2019 were 63.5%, 31.0%, and 94.5%, respectively, compared to 65.0%, 31.7%, and 96.7%, respectively, for the comparable 2018 period. Total prior year favorable development included in the pre-tax results for the quarter ended June 30, 2019 was $10.4 million compared to $12.1 million for the comparable 2018 period. Total prior year favorable development included in the pre-tax results for the six months ended June 30, 2019 was $22.3 million compared to $26.3 million for the comparable 2018 period. Net investment income for the quarter ended June 30, 2019 increased by $0.4 million , or 3.8%, to $10.6 million from $10.2 million for the comparable 2018 period. Net investment income for the six months ended June 30, 2019 increased by $1.6 million , or 7.8%, to $22.3 million from $20.7 million for the comparable 2018 period. The increase is a result of an increase in the average invested asset balance and improved investment income yields compared to the prior year. Net effective annualized yield on the investment portfolio was 3.2% for the three months ended June 30, 2019 and 2018. Net effective annualized yield on the investment portfolio for the six months ended June 30, 2019 was 3.3% compared to 3.2% for the comparable 2018 period. Our duration on fixed maturities was 3.0 years at June 30, 2019 and 3.6 years at December 31, 2018 , respectively. 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 operating income per diluted share consist of our GAAP net income adjusted by the net realized gains, net impairment losses on investments, change in net unrealized gains on equity securities and taxes related thereto. For the quarter ended June 30, 2019 an increase of $3.8 million for the change in unrealized gains was recognized within income before income taxes, compared to a decrease of $2.7 million recognized in the comparable 2018 period. For the six months ended June 30, 2019 , an increase of $15.6 million for the change in unrealized gains was recognized in income before income taxes, compared to a decrease of $6.2 million recognized in the comparable 2018 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 , and Safety Property and Casualty 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, 2018 Form 10-K with the SEC on February 28, 2019 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. Although a number of national insurers that are much larger than we are do not currently compete in a material way in the Massachusetts private passenger automobile market, if one or more of these companies decided to aggressively enter the market it could have a material adverse effect on us. Other significant factors include 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, 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, 2018 filed with the SEC on February 28, 2019 . 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 , 2019 2018 (Unaudited) Assets Investments: Fixed maturities, available for sale, at fair value (amortized cost: $1,150,224 and $1,175,413 ) $ 1,178,251 $ 1,161,862 Equity securities, at fair value (cost: $145,041 and $142,948 ) 165,659 148,011 Other invested assets 30,124 23,481 Total investments 1,374,034 1,333,354 Cash and cash equivalents 37,968 37,582 Accounts receivable, net of allowance for doubtful accounts 209,658 190,062 Receivable for securities sold 964 1,039 Accrued investment income 8,304 8,420 Taxes recoverable 1,671 — Receivable from reinsurers related to paid loss and loss adjustment expenses 28,819 13,691 Receivable from reinsurers related to unpaid loss and loss adjustment expenses 112,228 108,398 Ceded unearned premiums 35,900 33,974 Deferred policy acquisition costs 75,670 73,355 Deferred income taxes — 8,749 Equity and deposits in pools 28,492 28,094 Operating lease right-of-use-assets 36,116 — Other assets 23,290 19,522 Total assets $ 1,973,114 $ 1,856,240 Liabilities Loss and loss adjustment expense reserves $ 589,123 $ 584,719 Unearned premium reserves 453,612 435,380 Accounts payable and accrued liabilities 56,799 71,896 Payable for securities purchased 7,684 5,156 Payable to reinsurers 21,240 12,220 Deferred income taxes 1,221 — Taxes payable — 6,090 Operating lease liabilities 36,116 — Other liabilities 24,270 22,135 Total liabilities 1,190,065 1,137,596 Shareholders’ equity Common stock: $0.01 par value; 30,000,000 shares authorized; 17,663,364 and 17,566,180 shares issued 177 176 Additional paid-in capital 199,644 196,292 Accumulated other comprehensive income (loss), net of taxes 22,141 (10,706 ) Retained earnings 644,922 616,717 Treasury stock, at cost: 2,279,570 shares (83,835 ) (83,835 ) Total shareholders’ equity 783,049 718,644 Total liabilities and shareholders’ equity $ 1,973,114 $ 1,856,240 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 , 2019 2018 2019 2018 Net earned premiums $ 196,426 $ 194,125 $ 390,917 $ 386,158 Net investment income 10,574 10,188 22,325 20,719 Earnings from partnership investments 735 487 1,570 5,351 Net realized gains on investments 483 1,589 319 2,895 Change in net unrealized gains on equity investments 3,754 (2,711) 15,555 (6,193) Net impairment losses on investments (a) (54) — (274) — Finance and other service income 4,084 4,292 8,169 8,759 Total revenue 216,002 207,970 438,581 417,689 Losses and loss adjustment expenses 122,393 113,227 248,420 250,871 Underwriting, operating and related expenses 60,908 61,573 121,342 122,429 Interest expense 23 23 45 45 Total expenses 183,324 174,823 369,807 373,345 Income before income taxes 32,678 33,147 68,774 44,344 Income tax expense 6,744 6,331 12,894 8,403 Net income $ 25,934 $ 26,816 $ 55,880 $ 35,941 Earnings per weighted average common share: Basic $ 1.70 $ 1.77 $ 3.66 $ 2.37 Diluted $ 1.68 $ 1.75 $ 3.63 $ 2.35 Cash dividends paid per common share $ 0.80 $ 0.80 $ 1.60 $ 1.60 Number of shares used in computing earnings per share: Basic 15,220,822 15,090,435 15,181,034 15,068,321 Diluted 15,346,234 15,213,414 15,326,121 15,202,338 (a) No portion of the other-than-temporary impairments recognized in the period indicated were included in Other Comprehensive Income. Reconciliation of Net Income to Non-GAAP Operating Income Net income $ 25,934 $ 26,816 $ 55,880 $ 35,941 Exclusions from net income: Net realized gains on investments (483) (1,589) (319) (2,895) Change in net unrealized gains on equity investments (3,754) 2,711 (15,555) 6,193 Net impairment losses on investments 54 - 274 - Income tax expense (benefit) on exclusions from net income 878 (236) 3,276 (693) Non-GAAP operating income $ 22,629 $ 27,702 $ 43,556 $ 38,546 Net income per diluted share $ 1.68 $ 1.75 $ 3.63 $ 2.35 Exclusions from net income: Net realized gains on investments (0.03) (0.10) (0.02) (0.19) Change in net unrealized gains on equity investments (0.24) 0.18 (1.01) 0.41 Net impairment losses on investments - - 0.02 - Income tax expense (benefit) on exclusions from net income 0.06 (0.02) 0.21 (0.05) Non-GAAP operating income per diluted share $ 1.47 $ 1.81 $ 2.83 $ 2.52 Safety Insurance Group, Inc. and Subsidiaries Additional Premium Information (Unaudited) (Dollars in thousands) Three Months Ended June 30 , Six Months Ended June 30 , 2019 2018 2019 2018 Written Premiums Direct $ 233,595 $ 233,050 $ 436,982 $ 436,783 Assumed 8,175 8,297 16,420 16,245 Ceded (24,485 ) (25,832 ) (46,179 ) (47,500 ) Net written premiums $ 217,285 $ 215,515 $ 407,223 $ 405,528 Earned Premiums Direct $ 210,334 $ 208,297 $ 417,642 $ 412,116 Assumed 8,213 7,880 17,528 16,767 Ceded (22,121 ) (22,052 ) (44,253 ) (42,725 ) Net earned premiums $ 196,426 $ 194,125 $ 390,917 $ 386,158 View source version on businesswire.com : https://www.businesswire.com/news/home/20190731005972/en/ Safety Insurance Group, Inc. Office of Investor Relations 877-951-2522 [email protected] Source: Safety Insurance Group, Inc.

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