Safety Insurance Group, Inc. Announces Third Quarter 2023 Results and Declares Fourth 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 third quarter 2023 results. George M. Murphy , President and Chief Executive Officer, commented: “The third quarter financial results continue to be impacted by the inflationary pressures on our Private Passenger Automobile book of business. Safety’s third quarter combined ratio of 104.8% also includes an increased amount of Private Passenger Automobile losses resulting from multiple flooding events and a wind event that impacted our Homeowners book of business. We continue to see strong growth in our Net Written Premiums which increased by 22.2% and 19.2% for the three and nine months ended September 30, 2023 , respectively. This is driven by an increase in policy counts of 11.5% and an increase in average written premium per policy of 7.6%.” “We continue to file rate increases to combat the ongoing industry wide loss and severity trends in the private passenger automobile business. We have also been approved for increases across all other lines of business. Safety remains committed to maintaining underwriting discipline, while leveraging investments in our pricing and risk management areas to ensure rate adequacy.” Net income for the quarter ended September 30, 2023 was $1.9 million , or $0.13 per diluted share, compared to net income of $6.2 million , or $0.42 per diluted share, for the comparable 2022 period. Net income for the nine months ended September 30, 2023 was $6.6 million , or $0.45 per diluted share, compared to net income of $21.9 million , or $1.48 per diluted share, for the comparable 2022 period. Non-generally accepted accounting principles (“non-GAAP”) operating income, as defined below, for the quarter ended September 30, 2023 was $0.59 per diluted share, compared to $1.13 per diluted share, for the comparable 2022 period. Non-GAAP operating income for the nine months ended September 30, 2023 was $0.54 per diluted share, compared to Non-GAAP operating income of $4.05 per diluted share, for the comparable 2022 period. Safety’s book value per share decreased to $52.04 at September 30, 2023 from $54.88 at December 31, 2022 resulting from net income offset by capital stock activities, specifically share repurchases and dividends paid. During the nine months ended September 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 September 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 December 15, 2023 to shareholders of record at the close of business on December 1, 2023 . Direct written premiums for the quarter ended September 30, 2023 increased by $49.2 million , or 22.6%, to $267.1 million from $217.9 million for the comparable 2022 period. Direct written premiums for the nine months ended September 30, 2023 increased by $123.2 million , or 19.8% to $745.1 million from $621.9 million for the comparable 2022 period. Net written premiums for the quarter ended September 30, 2023 increased by $45.6 million , or 22.2%, to $251.1 million from $205.5 million for the comparable 2022 period. Net written premiums for the year ended September 30, 2023 increased by $112.7 million , or 19.2%, to $698.9 million from $586.2 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 nine months ended September 30, 2023 , the Company achieved policy count growth across all lines of business, including 14.1%, 5.9% and 9.7% in Private Passenger Automobile, Commercial Automobile and Homeowners lines, respectively, compared to the same period in 2022. Additionally, for the nine months ended September 30, 2023 , average written premium per policy increased 10.7%, 4.5% and 4.5% in Private Passenger Automobile, Commercial Automobile and Homeowners lines, respectively, compared to the same period in 2022. Net earned premiums for the quarter ended September 30, 2023 increased by $24.5 million , or 12.9%, to $214.4 million from $189.9 million for the comparable 2022 period. Net earned premiums for the nine months ended September 30, 2023 increased by $43.0 million , or 7.6%, to $608.4 million from $565.4 million for the comparable 2022 period. For the quarter ended September 30, 2023 , losses and loss adjustment expenses incurred increased by $35.4 million , or 28.6%, to $159.5 million from $124.1 million for the comparable 2022 period. For the nine months ended September 30, 2023 , losses and loss adjustment expenses incurred increased by $110.2 million , or 30.6%, to $470.2 million from $360.0 million for the comparable 2022 period. The increase in losses is driven by current market conditions, specifically inflation, as well as weather events including multiple flood events, a high wind event, and a severe winter weather event that occurred in February. Loss, expense, and combined ratios calculated for the quarter ended September 30, 2023 , were 74.4%, 30.4%, and 104.8%, respectively, compared to 65.3%, 31.8%, and 97.1%, respectively, for the comparable 2022 period. Loss, expense, and combined ratios calculated for the nine months ended September 30, 2023 were 77.3%, 30.9%, and 108.2%, respectively, compared to 63.7%, 32.3%, and 96.0%, 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 September 30, 2023 was $13.5 million compared to $14.0 million for the comparable 2022 period. Total prior year favorable development included pre-tax results for the nine months ended September 30, 2023 was $35.0 million compared to $43.2 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 September 30, 2023 increased by $2.9 million , or 26.0% to $14.0 million from $11.1 million for the comparable 2022 period. Net investment income for the nine months ended September 30, 2023 increased by $8.2 million , or 24.5%, to $41.5 million from $33.3 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 4.0% for the quarter ended September 30, 2023 compared to 3.1% for the comparable 2022 period. Net effective annualized yield on the investment portfolio for the nine months ended September 30, 2023 was 3.9% compared to 3.0% for the comparable 2022 period. Our duration on fixed maturities was 3.6 years at September 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 September 30, 2023 , a decrease of $9.2 million for the change in unrealized gains on equity securities was recognized within income before income taxes, compared to a decrease of $14.4 million recognized in the comparable 2022 period. For the nine months ended September 30, 2023 , a decrease of $2.1 million for the change in unrealized gains on equity securities was recognized in income before income taxes, compared to a decrease of $56.3 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) September 30 , December 31 , 2023 2022 (Unaudited) Assets Investments: Fixed maturities, available for sale, at fair value (amortized cost: $1,117,352 and $1,152,779 , allowance for expected credit losses of $1,231 and $678 ) $ 1,005,225 $ 1,050,155 Equity securities, at fair value (cost: $216,589 and $231,444 ) 223,152 240,155 Other invested assets 129,739 112,850 Total investments 1,358,116 1,403,160 Cash and cash equivalents 30,894 25,300 Accounts receivable, net of allowance for expected credit losses of $867 and $1,446 258,267 192,542 Receivable for securities sold 845 877 Accrued investment income 7,688 8,212 Taxes recoverable 7,286 — Receivable from reinsurers related to paid loss and loss adjustment expenses 30,006 12,988 Receivable from reinsurers related to unpaid loss and loss adjustment expenses 106,708 93,394 Ceded unearned premiums 29,819 28,453 Deferred policy acquisition costs 91,613 75,582 Deferred income taxes 21,307 21,074 Equity and deposits in pools 37,096 33,648 Operating lease right-of-use-assets 20,586 23,336 Goodwill 17,093 17,093 Intangible assets 7,242 7,856 Other assets 27,539 29,054 Total assets $ 2,052,105 $ 1,972,569 Liabilities Loss and loss adjustment expense reserves $ 584,175 $ 549,598 Unearned premium reserves 525,297 433,375 Accounts payable and accrued liabilities 61,757 73,875 Payable for securities purchased 2,059 1,359 Payable to reinsurers 24,526 11,444 Taxes payable — 1,729 Debt 30,000 35,000 Operating lease liabilities 20,586 23,336 Other liabilities 33,956 30,854 Total liabilities 1,282,356 1,160,570 Shareholders’ equity Common stock: $0.01 par value; 30,000,000 shares authorized; 17,949,484 and 17,879,095 shares issued 179 179 Additional paid-in capital 225,301 222,049 Accumulated other comprehensive (loss) income, net of taxes (87,607) (80,538) Retained earnings 782,169 815,309 Treasury stock, at cost: 3,157,577 and 3,083,364 shares (150,293) (145,000) Total shareholders’ equity 769,749 811,999 Total liabilities and shareholders’ equity $ 2,052,105 $ 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 September 30 , Nine Months Ended September 30 , 2023 2022 2023 2022 Net earned premiums $ 214,425 $ 189,931 $ 608,385 $ 565,352 Net investment income 14,005 11,112 41,495 33,337 Earnings from partnership investments 2,427 876 5,146 9,675 Net realized gains on investments 270 1,251 1,111 8,613 Change in net unrealized gains on equity securities (9,184) (14,364) (2,148) (56,283) Credit loss expense 403 (207) (554) (207) Commission income 1,918 — 5,159 — Finance and other service income 5,094 3,749 13,966 10,469 Total revenue 229,358 192,348 672,560 570,956 Losses and loss adjustment expenses 159,521 124,069 470,197 359,950 Underwriting, operating and related expenses 65,217 60,373 187,832 182,839 Other expense 2,005 — 5,198 — Interest expense 139 132 697 392 Total expenses 226,882 184,574 663,924 543,181 Income before income taxes 2,476 7,774 8,636 27,775 Income tax expense 527 1,582 2,023 5,844 Net income $ 1,949 $ 6,192 $ 6,613 $ 21,931 Earnings per weighted average common share: Basic $ 0.13 $ 0.42 $ 0.45 $ 1.49 Diluted $ 0.13 $ 0.42 $ 0.45 $ 1.48 Cash dividends paid per common share $ 0.90 $ 0.90 $ 2.70 $ 2.70 Number of shares used in computing earnings per share: Basic 14,645,988 14,599,136 14,669,709 14,608,591 Diluted 14,682,082 14,711,737 14,721,063 14,713,552 Reconciliation of Net Income to Non-GAAP Operating Income Net income $ 1,949 $ 6,192 $ 6,613 $ 21,931 Exclusions from net income: Net realized gains on investments (270) (1,251) (1,111) (8,613) Change in net unrealized gains on equity securities 9,184 14,364 2,148 56,283 Credit loss expense (403) 207 554 207 Income tax expense on exclusions from net income (1,787) (2,797) (334) (10,054) Non-GAAP operating income $ 8,673 $ 16,715 $ 7,870 $ 59,754 Net income per diluted share $ 0.13 $ 0.42 $ 0.45 $ 1.48 Exclusions from net income: Net realized gains on investments (0.02) (0.09) (0.08) (0.59) Change in net unrealized gains on equity securities 0.63 0.98 0.15 3.83 Credit loss expense (0.03) 0.01 0.04 0.01 Income tax expense on exclusions from net income (0.12) (0.19) (0.02) (0.68) Non-GAAP operating income per diluted share $ 0.59 $ 1.13 $ 0.54 $ 4.05 Safety Insurance Group, Inc. and Subsidiaries Additional Premium Information (Unaudited) (Dollars in thousands) Three Months Ended September 30 , Nine Months Ended September 30 , 2023 2022 2023 2022 Written Premiums Direct $ 267,124 $ 217,878 $ 745,133 $ 621,947 Assumed 7,472 6,460 23,230 21,168 Ceded (23,509) (18,910) (69,423) (56,911) Net written premiums $ 251,087 $ 205,428 $ 698,940 $ 586,204 Earned Premiums Direct $ 231,249 $ 202,190 $ 654,085 $ 597,662 Assumed 6,839 6,497 22,357 21,835 Ceded (23,663) (18,756) (68,057) (54,145) Net earned premiums $ 214,425 $ 189,931 $ 608,385 $ 565,352 View source version on businesswire.com : https://www.businesswire.com/news/home/20231101473067/en/ Safety Insurance Group, Inc. Office of Investor Relations 877-951-2522 [email protected] Source: Safety Insurance Group, Inc.

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