Safety Announces Second Quarter 2020 Results and Declares Third Quarter 2020 Dividend

About this update from Safety Insurance Group, Inc.

BOSTON --(BUSINESS WIRE)-- Safety Insurance Group, Inc. (NASDAQ:SAFT) (“the Company”) today reported second quarter 2020 results. Net income for the quarter ended June 30, 2020 was $42.5 million , or $2.78 per diluted share, compared to net income of $25.9 million , or $1.68 per diluted share, for the comparable 2019 period. Net income for the six months ended June 30, 2020 was $40.5 million , or $2.64 per diluted share, compared to net income of $55.9 million , or $3.63 per diluted share, for the comparable 2019 period. Non-generally accepted accounting principles (“non-GAAP”) operating income, as defined below, for the quarter ended June 30, 2020 was $1.95 per diluted share, compared to $1.47 per diluted share, for the comparable 2019 period. Non-GAAP operating income for the six months ended June 30, 2020 was $3.52 per diluted share, compared to $2.83 per diluted share, for the comparable 2019 period. Safety’s book value per share increased to $53.95 at June 30, 2020 from $52.55 at December 31, 2019 , primarily as a result of net income and an increase in unrealized gains, partially offset by dividends paid and the purchase of treasury shares during the six months ended June 30, 2020 . During the three and six months ended June 30, 2020 the Company purchased 158,552 and 301,844 shares, respectively, on the open market at a cost of $11.8 million and $22.1 million , respectively. Safety paid $0.90 per share in dividends to investors during the quarter ended June 30, 2020 compared to $0.80 per share in dividends to investors during the quarter ended June 30, 2019 . Safety paid $3.40 per share during the year ended December 31, 2019 . During this challenging time, the Company has continued to take many actions that address the health and well-being of our employees while still serving the needs of our agents and insureds. Beginning in March 2020 , the global pandemic associated with the novel coronavirus COVID-19 (“COVID-19”) and related economic conditions caused significant economic effects including temporary closures of many businesses and reduced consumer activity due to shelter-in-place, stay-at-home and other governmental actions. During the second quarter of 2020, the Company announced the Safety Personal Auto Relief Credit, a 15% policyholder credit, representing $17.7 million in total premium which was applied to personal auto policies for the months of April, May and June. This entire activity was booked as an adjustment to premiums during the second quarter of 2020. Additionally, as part of our efforts to assist policyholders, the Company instituted a moratorium on policy cancellations and assessment of various fees during the three months ended June 30, 2020 which resulted in a decrease in finance and other service income of $0.8 million to $3.3 million from $4.1 million for the comparable 2019 period. Direct written premiums for the quarter ended June 30, 2020 decreased by $28.3 million , or 12.1%, to $205.3 million from $233.6 million for the comparable 2019 period. Direct written premiums for the six months ended June 30, 2020 decreased by $34.4 million , or 7.9% to $402.6 million from $437.0 million for the comparable 2019 period. The 2020 decrease reflects the personal auto premium relief as described above. In addition, the decrease is also attributable to our commercial automobile line of business and is a result of changes made by Commonwealth Automobile Reinsurers (“CAR”) to eligibility requirements which impacted the number of policies that we handle as a Servicing Carrier to the ceded pool. This resulted in a commensurate decrease in ceded written premium to and assumed from these programs. Net written premiums for the quarter ended June 30, 2020 decreased by $19.6 million , or 9.0%, to $197.7 million from $217.3 million for the comparable 2019 period. Net written premiums for the six months ended June 30, 2020 decreased by $20.6 million , or 5.0%, to $386.6 million from $407.2 million for the comparable 2019 period. Net earned premiums for the quarter ended June 30, 2020 decreased by $14.5 million , or 7.4%, to $181.9 million from $196.4 million for the comparable 2019 period. Net earned premiums for the six months ended June 30, 2020 decreased by $11.2 million , or 2.8%, to $379.7 million from $390.9 million for the comparable 2019 period. The decreases in both periods are a result of the premium relief as described above. The pandemic has resulted in fewer cars on the road, resulting in a decrease in frequency, primarily in our private passenger automobile line of business. As a result, for the quarter ended June 30, 2020 , loss and loss adjustment expenses incurred decreased by $31.4 million , or 25.7%, to $91.0 million from $122.4 million for the comparable 2019 period. For the six months ended June 30, 2020 , loss and loss adjustment expenses incurred decreased by $36.7 million , or 14.8%, to $211.7 million from $248.4 million for the comparable 2019 period. Loss, expense, and combined ratios calculated under U.S. generally accepted accounting principles for the quarter ended June 30, 2020 were 50.0%, 34.9%, and 84.9%, respectively, compared to 62.3%, 31.0%, and 93.3%, respectively, for the comparable 2019 period. Loss, expense, and combined ratios calculated under U.S. generally accepted accounting principles for the six months ended June 30, 2020 were 55.7%, 33.3%, and 89.0%, respectively, compared to 63.5%, 31.0%, and 94.5%, respectively, for the comparable 2019 period. Total prior year favorable development included in the pre-tax results for the quarter ended June 30, 2020 was $9.7 million compared to $10.4 million for the comparable 2019 period. Total prior year favorable development included in the pre-tax results for the six months ended June 30, 2020 was $19.3 million compared to $22.3 million for the comparable 2019 period. The increase in the expense ratios in the respective periods is partially driven by costs associated with various system modernization in our claims, billing and underwriting areas, a reduction in certain expense allowances offered under the Servicing Carrier program that have decreased with the related written premium as noted above and an increase in contingent commission expense. Furthermore, the loss, expense and combined ratios in both periods reflect a lower earned premium base in their respective ratio calculations due to the premium relief efforts noted above. Net investment income for the quarter ended June 30, 2020 decreased by $0.7 million , or 6.2%, to $9.9 million from $10.6 million for the comparable 2019 period. Net investment income for the six months ended June 30, 2020 decreased by $1.7 million , or 7.6%, to $20.6 million from $22.3 million for the comparable 2019 period. The decrease in net investment income for the quarter ended June 30, 2020 is a result of lower yields on our fixed maturities, specifically bank loans, as well as a decrease in interest income on our partnership investments. The decrease for the six months ended June 30, 2020 is a result of fixed maturity amortization resulting from prepayment activity on certain residential mortgage-backed securities. Net effective annualized yield on the investment portfolio for the quarter ended June 30, 2020 was 2.9% compared to 3.2% for the comparable 2019 period. Net effective annualized yield on the investment portfolio for the six months ended June 30, 2020 was 3.0% compared to 3.3% for the comparable 2019 period. Our duration on fixed maturities was 3.3 years at June 30, 2020 and December 31, 2019 . On August 5, 2020 , our Board of Directors approved a $0.90 per share quarterly cash dividend on its issued and outstanding common stock payable on September 15, 2020 to shareholders of record at the close of business on September 1, 2020 . 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 (losses) gains on investments, net impairment losses on investments, change in net unrealized gains on equity investments, credit loss expense and taxes related thereto. For the quarter ended June 30, 2020 , an increase of $16.8 million for the change in unrealized gains on equity securities was recognized within income before income taxes, compared to $3.8 million recognized in the comparable 2019 period. For the six months ended June 30, 2020 , a decrease of $13.2 million for the change in unrealized gains on equity securities was recognized in income before income taxes, compared to an increase of $15.6 million recognized in the comparable 2019 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, 2019 Form 10-K with the SEC on February 28, 2020 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; 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 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, 2019 filed with the SEC on February 28, 2020 . 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 , 2020 2019 (Unaudited) Assets Investments: Fixed maturities, available for sale, at fair value (amortized cost: $1,168,666 and $1,192,357 , allowance for expected credit losses of $2,471 at June 30, 2020 ) $ 1,219,714 $ 1,228,040 Equity securities, at fair value (cost: $164,991 and $151,121 ) 178,347 177,637 Other invested assets 35,526 37,278 Total investments 1,433,587 1,442,955 Cash and cash equivalents 44,757 44,407 Accounts receivable, net of allowance for credit losses of $914 at June 30, 2020 199,356 193,369 Receivable for securities sold 2,523 1,784 Accrued investment income 8,000 8,404 Taxes recoverable 411 1,003 Receivable from reinsurers related to paid loss and loss adjustment expenses 16,018 11,319 Receivable from reinsurers related to unpaid loss and loss adjustment expenses 116,378 122,372 Ceded unearned premiums 26,073 35,182 Deferred policy acquisition costs 77,350 74,287 Equity and deposits in pools 34,118 29,791 Operating lease right-of-use-assets 33,092 33,998 Other assets 27,251 23,798 Total assets $ 2,018,914 $ 2,022,669 Liabilities Loss and loss adjustment expense reserves $ 599,747 $ 610,566 Unearned premium reserves 440,007 442,219 Accounts payable and accrued liabilities 60,518 75,016 Payable for securities purchased 7,451 6,377 Payable to reinsurers 11,794 12,911 Deferred income taxes 4,413 5,717 Debt 30,000 — Operating lease liabilities 33,092 33,998 Other liabilities 14,914 27,459 Total liabilities 1,201,936 1,214,263 Shareholders’ equity Common stock: $0.01 par value; 30,000,000 shares authorized; 17,724,866 and 17,662,779 shares issued 177 177 Additional paid-in capital 206,130 202,321 Accumulated other comprehensive income, net of taxes 42,302 28,190 Retained earnings 674,349 661,553 Treasury stock, at cost: 2,581,414 and 2,279,570 shares (105,980 ) (83,835 ) Total shareholders’ equity 816,978 808,406 Total liabilities and shareholders’ equity $ 2,018,914 $ 2,022,669 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 , 2020 2019 2020 2019 Net earned premiums $ 181,902 $ 196,426 $ 379,797 $ 390,917 Net investment income 9,916 10,574 20,626 22,325 (Losses) earnings from partnership investments (3,449 ) 735 (2,110 ) 1,570 Net realized (losses) gains on investments (721 ) 483 (1,352 ) 319 Change in net unrealized gains on equity investments 16,828 3,754 (13,160 ) 15,555 Net impairment losses on investments (a) — (54 ) — (274 ) Credit loss expense 39 — (2,471 ) — Finance and other service income 3,255 4,084 7,484 8,169 Total revenue 207,770 216,002 388,814 438,581 Losses and loss adjustment expenses 90,974 122,393 211,720 248,420 Underwriting, operating and related expenses 63,514 60,908 126,596 121,342 Interest expense 130 23 177 45 Total expenses 154,618 183,324 338,493 369,807 Income before income taxes 53,152 32,678 50,321 68,774 Income tax expense 10,658 6,744 9,817 12,894 Net income $ 42,494 $ 25,934 $ 40,504 $ 55,880 Earnings per weighted average common share: Basic $ 2.80 $ 1.70 $ 2.66 $ 3.66 Diluted $ 2.78 $ 1.68 $ 2.64 $ 3.63 Cash dividends paid per common share $ 0.90 $ 0.80 $ 1.80 $ 1.60 Number of shares used in computing earnings per share: Basic 15,120,039 15,220,822 15,175,409 15,181,034 Diluted 15,237,295 15,346,234 15,292,186 15,326,121 (a) No portion of the other-than-temporary impairments recognized in the period indicated were included in Other Comprehensive Income for the period ended June 30, 2019 . Reconciliation of Net Income to Non-GAAP Operating Income Net income $ 42,494 $ 25,934 $ 40,504 $ 55,880 Exclusions from net income: Net realized losses (gains) on investments 721 (483 ) 1,352 (319 ) Change in net unrealized gains on equity investments (16,828 ) (3,754 ) 13,160 (15,555 ) Net impairment losses on investments - 54 - 274 Credit loss expense (39 ) - 2,471 - Income tax expense (benefit) on exclusions from net income 3,391 878 (3,566 ) 3,276 Non-GAAP operating income $ 29,739 $ 22,629 $ 53,921 $ 43,556 Net income per diluted share $ 2.78 $ 1.68 $ 2.64 $ 3.63 Exclusions from net income: Net realized losses (gains) on investments 0.05 (0.03 ) 0.09 (0.02 ) Change in net unrealized gains on equity investments (1.10 ) (0.24 ) 0.86 (1.01 ) Net impairment losses on investments - - - 0.02 Credit loss expense - - 0.16 - Income tax expense (benefit) on exclusions from net income 0.22 0.06 (0.23 ) 0.21 Non-GAAP operating income per diluted share $ 1.95 $ 1.47 $ 3.52 $ 2.83 Safety Insurance Group, Inc. and Subsidiaries Additional Premium Information (Unaudited) (Dollars in thousands) Three Months Ended June 30 , Six Months Ended June 30 , 2020 2019 2020 2019 Written Premiums Direct $ 205,301 $ 233,595 $ 402,647 $ 436,982 Assumed 7,128 8,175 15,106 16,420 Ceded (14,693 ) (24,485 ) (31,059 ) (46,179 ) Net written premiums $ 197,736 $ 217,285 $ 386,694 $ 407,223 Earned Premiums Direct $ 192,945 $ 210,334 $ 403,096 $ 417,642 Assumed 7,767 8,213 16,869 17,528 Ceded (18,810 ) (22,121 ) (40,168 ) (44,253 ) Net earned premiums $ 181,902 $ 196,426 $ 379,797 $ 390,917 View source version on businesswire.com : https://www.businesswire.com/news/home/20200805005937/en/ Safety Insurance Group, Inc. Office of Investor Relations 877-951-2522 [email protected] Source: Safety Insurance Group, Inc.

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