Safety Insurance Group, Inc. Announces Second Quarter 2023 Results and Declares Third Quarter 2023 Dividend

About this update from Safety Insurance Group, Inc.

BOSTON --(BUSINESS WIRE)-- Safety Insurance Group, Inc. (NASDAQ:SAFT) (“Safety” or the “Company”) today reported second quarter 2023 results. George M. Murphy , President and Chief Executive Officer, commented: “Safety’s combined ratio of 101.9% for the second quarter is driven mainly by continued inflationary impacts on our private passenger auto line of business. We continue to file rate increases to combat these ongoing industry wide loss trends. For the six months ended June 30, 2023 , our policy counts have increased by 11.6%, with an average premium per policy increase of 6.4% compared to the prior period. Safety remains diligent in following consistent underwriting guidelines, while writing additional risks at appropriate rates.” Net income for the quarter ended June 30, 2023 was $17.0 million , or $1.15 per diluted share, compared to net income of $7.9 million , or $0.53 per diluted share, for the comparable 2022 period. Net income for the six months ended June 30, 2023 was $4.7 million , or $0.31 per diluted share, compared to net income of $15.7 million , or $1.06 per diluted share, for the comparable 2022 period. Non-generally accepted accounting principles (“non-GAAP”) operating income, as defined below, for the quarter ended June 30, 2023 was $0.80 per diluted share, compared to $1.91 per diluted share, for the comparable 2022 period. Non-GAAP operating loss for the six months ended June 30, 2023 was $0.07 per diluted share, compared to Non-GAAP operating income of $2.92 per diluted share, for the comparable 2022 period. Safety’s book value per share decreased to $53.66 at June 30, 2023 from $54.88 at December 31, 2022 resulting from the impact of a severe winter weather event that occurred in February, and capital stock activities, specifically share repurchases and dividends paid. During the quarter ended June 30,2023 , the Company purchased 74,213 shares at a cost of $5.2 million . Safety paid $0.90 per share in dividends to investors during the quarters ended June 30, 2023 and 2022, respectively. Safety paid $3.60 per share in dividends to investors during the year ended December 31, 2022 . Today, our Board of Directors approved a $0.90 per share quarterly cash dividend on our issued and outstanding common stock payable on September 15, 2023 to shareholders of record at the close of business on September 1, 2023 . Direct written premiums for the quarter ended June 30, 2023 increased by $45.6 million , or 21.2%, to $260.2 million from $214.6 million for the comparable 2022 period. Direct written premiums for the six months ended June 30, 2023 increased by $73.9 million , or 18.3%, to $478.0 million from $404.1 million for the comparable 2022 period. Net written premiums for the quarter ended June 30, 2023 increased by $42.2 million , or 20.8%, to $245.0 million from $202.7 million for the comparable 2022 period. Net written premiums for the year ended June 30, 2023 increased by $67.1 million , or 17.6%, to $447.9 million from $380.8 million for the comparable 2022 period. The increases in direct written premiums and net written premiums are a result of new business production, improved retention, and rate increases. For the six months ended June 30, 2023 , the Company achieved policy count growth across all lines of business, including 13.5%, 4.0% and 9.1% in Private Passenger Automobile, Commercial Automobile and Homeowners lines, respectively, compared to the same period in 2022. Additionally, for the six months ended June 30, 2023 , average written premium per policy increased 9.4%, 5.2% and 3.9% in Private Passenger Automobile, Commercial Automobile and Homeowners lines, respectively, compared to the same period in 2022. Net earned premiums for the quarter ended June 30, 2023 increased by $13.9 million , or 7.4%, to $202.2 million from $188.3 million for the comparable 2022 period. Net earned premiums for the six months ended June 30, 2023 increased by $18.5 million , or 4.9%, to $394.0 million from $375.4 million for the comparable 2022 period. For the quarter ended June 30, 2023 , losses and loss adjustment expenses incurred increased by $30.8 million , or 27.3%, to $143.5 million from $112.7 million for the comparable 2022 period. For the six months ended June 30, 2023 , losses and loss adjustment expenses incurred increased by $74.8 million , or 31.7%, to $310.7 million from $235.9 million for the comparable 2022 period. The increase in losses is driven by current market conditions, specifically inflation, as well as a severe winter weather event that occurred in February. Loss, expense, and combined ratios calculated for the quarter ended June 30, 2023 were 71.0%, 30.9%, and 101.9%, respectively, compared to 59.8%, 32.3%, and 92.1%, respectively, for the comparable 2022 period. Loss, expense, and combined ratios calculated for the six months ended June 30, 2023 were 78.9%, 31.1%, and 110.0%, respectively, compared to 62.8%, 32.6%, and 95.4%, respectively, for the comparable 2022 period. The decrease in the expense ratio is primarily 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, 2023 was $10.0 million compared to $16.9 million for the comparable 2022 period. Total prior year favorable development included pre-tax results for the six months ended June 30, 2023 was $21.5 million compared to $29.3 million for the comparable 2022 period, which included the reversal of a $6.5 million accrued reserve for legal defense costs associated with business interruption claims resulting from the COVID-19 pandemic. Net investment income for the quarter ended June 30, 2023 increased by $2.2 million , or 18.9% to $13.8 million from $11.6 million for the comparable 2022 period. Net investment income for the six months ended June 30, 2023 increased by $5.3 million , or 23.7%, to $27.5 million from $22.2 million for the comparable 2022 period. The increase is a result of increases in interest rates on our fixed maturity portfolio compared to the prior year. Net effective annualized yield on the investment portfolio was 3.9% for the quarter ended June 30, 2023 compared to 3.2% for the comparable 2022 period. Net effective annualized yield on the investment portfolio for the six months ended June 30 was 3.9% compared to 3.0% for the comparable 2022 period. Our duration on fixed maturities was 3.7 years at June 30, 2023 compared to 3.8 years at December 31, 2022 . 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 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, 2023 , an increase of $6.3 million for the change in unrealized gains on equity securities was recognized within income before income taxes, compared to a decrease of $28.9 million recognized in the comparable 2022 period. For the six months ended June 30, 2023 , an increase of $7.0 million for the change in unrealized gains on equity securities was recognized in income before income taxes, compared to a decrease of $41.9 million recognized in the comparable 2022 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 , Safety Northeast Insurance Company , and Safety Northeast Insurance Agency . 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, 2022 Form 10-K with the SEC on February 28, 2023 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 impact of inflation and supply chain delays on loss severity; 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, 2022 filed with the SEC on February 28, 2023 . 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 , 2023 2022 (Unaudited) Assets Investments: Fixed maturities, available for sale, at fair value (amortized cost: $1,112,843 and $1,152,779 , allowance for expected credit losses of $1,635 and $678 ) $ 1,017,467 $ 1,050,155 Short term investments, at fair value (cost: $79 and $0 ) 79 — Equity securities, at fair value (cost: $214,309 and $231,444 ) 230,056 240,155 Other invested assets 125,943 112,850 Total investments 1,373,545 1,403,160 Cash and cash equivalents 25,388 25,300 Accounts receivable, net of allowance for expected credit losses of $996 and $1,446 238,563 192,542 Receivable for securities sold 607 877 Accrued investment income 7,200 8,212 Taxes recoverable 3,129 — Receivable from reinsurers related to paid loss and loss adjustment expenses 27,494 12,988 Receivable from reinsurers related to unpaid loss and loss adjustment expenses 96,780 93,394 Ceded unearned premiums 29,973 28,453 Deferred policy acquisition costs 84,423 75,582 Deferred income taxes 20,515 21,074 Equity and deposits in pools 34,249 33,648 Operating lease right-of-use-assets 21,734 23,336 Goodwill 17,093 17,093 Intangible assets 7,439 7,856 Other assets 27,973 29,054 Total assets $ 2,016,105 $ 1,972,569 Liabilities Loss and loss adjustment expense reserves $ 565,027 $ 549,598 Unearned premium reserves 488,788 433,375 Accounts payable and accrued liabilities 59,557 73,875 Payable for securities purchased — 1,359 Payable to reinsurers 13,069 11,444 Taxes payable — 1,729 Debt 35,000 35,000 Operating lease liabilities 21,734 23,336 Other liabilities 39,180 30,854 Total liabilities 1,222,355 1,160,570 Shareholders’ equity Common stock: $0.01 par value; 30,000,000 shares authorized; 17,949,717 and 17,879,095 shares issued 179 179 Additional paid-in capital 224,476 222,049 Accumulated other comprehensive (loss) income, net of taxes (74,055 ) (80,538 ) Retained earnings 793,443 815,309 Treasury stock, at cost: 3,157,577 and 3,083,364 shares (150,293 ) (145,000 ) Total shareholders’ equity 793,750 811,999 Total liabilities and shareholders’ equity $ 2,016,105 $ 1,972,569 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 , 2023 2022 2023 2022 Net earned premiums $ 202,225 $ 188,333 $ 393,960 $ 375,421 Net investment income 13,836 11,635 27,490 22,225 Earnings from partnership investments 553 5,967 2,719 8,799 Net realized gains on investments 108 3,152 841 7,362 Change in net unrealized gains on equity securities 6,266 (28,885 ) 7,036 (41,919 ) Credit loss expense (35 ) — (957 ) — Commission income 1,758 — 3,241 — Finance and other service income 4,732 3,403 8,872 6,720 Total revenue 229,443 183,605 443,202 378,608 Losses and loss adjustment expenses 143,523 112,715 310,676 235,881 Underwriting, operating and related expenses 62,582 60,872 122,615 122,466 Other expense 1,523 — 3,193 — Interest expense 348 131 558 260 Total expenses 207,976 173,718 437,042 358,607 Income before income taxes 21,467 9,887 6,160 20,001 Income tax expense 4,466 1,986 1,496 4,262 Net income $ 17,001 $ 7,901 $ 4,664 $ 15,739 Earnings per weighted average common share: Basic $ 1.15 $ 0.54 $ 0.32 $ 1.07 Diluted $ 1.15 $ 0.53 $ 0.31 $ 1.06 Cash dividends paid per common share $ 0.90 $ 0.90 $ 1.80 $ 1.80 Number of shares used in computing earnings per share: Basic 14,681,034 14,599,057 14,681,766 14,613,399 Diluted 14,720,520 14,702,627 14,741,076 14,715,099 Reconciliation of Net Income to Non-GAAP Operating Income Net income $ 17,001 $ 7,901 $ 4,664 $ 15,739 Exclusions from net income: Net realized gains on investments (108 ) (3,152 ) (841 ) (7,362 ) Change in net unrealized (losses) gains on equity securities (6,266 ) 28,885 (7,036 ) 41,919 Credit loss expense 35 - 957 - Income tax expense on exclusions from net income 1,331 (5,404 ) 1,453 (7,257 ) Non-GAAP operating income (loss) $ 11,993 $ 28,230 $ (803 ) $ 43,039 Net income per diluted share $ 1.15 $ 0.53 $ 0.31 $ 1.06 Exclusions from net income: Net realized gains on investments (0.01 ) (0.21 ) (0.06 ) (0.50 ) Change in net unrealized gains on equity securities (0.43 ) 1.96 (0.48 ) 2.85 Credit loss expense - - 0.06 - Income tax expense on exclusions from net income 0.09 (0.37 ) 0.10 (0.49 ) Non-GAAP operating income (loss) per diluted share $ 0.80 $ 1.91 $ (0.07 ) $ 2.92 Safety Insurance Group, Inc. and Subsidiaries Additional Premium Information (Unaudited) (Dollars in thousands) Three Months Ended June 30 , Six Months Ended June 30 , 2023 2022 2023 2022 Written Premiums Direct $ 260,157 $ 214,576 $ 478,009 $ 404,069 Assumed 8,528 7,967 15,758 14,708 Ceded (23,716 ) (19,819 ) (45,914 ) (38,001 ) Net written premiums $ 244,969 $ 202,724 $ 447,853 $ 380,776 Earned Premiums Direct $ 217,281 $ 198,953 $ 422,836 $ 395,472 Assumed 7,605 7,584 15,518 15,338 Ceded (22,661 ) (18,204 ) (44,394 ) (35,389 ) Net earned premiums $ 202,225 $ 188,333 $ 393,960 $ 375,421 View source version on businesswire.com : https://www.businesswire.com/news/home/20230802916551/en/ Safety Insurance Group, Inc. Office of Investor Relations 877-951-2522 [email protected] Source: Safety Insurance Group, Inc.

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