Safety Announces Fourth Quarter And Year End 2012 Results

Safety Insurance Group, Inc. (NASDAQ:SAFT) today reported fourth quarter and year end 2012 results. Net income for the quarter ended December 31, 2012 was $9.6 million, or $0.62 per diluted share, compared to $4.8 million, or $0.31 per diluted share, for the comparable 2011 period. Net income for the year ended December 31, 2012 was $58.1 million, or $3.80 per diluted share, compared to $13.7 million, or $0.90 per diluted share, for the comparable 2011 period. Safety’s book value per share increased to $45.31 at December 31, 2012 from $43.22 at December 31, 2011. Safety paid $0.60 per share in dividends to investors during the quarter ended December 31, 2012, compared to $0.50 per share during the comparable 2011 period. Safety paid $2.20 per share in dividends to investors during the year ended December 31, 2012 compared to $2.00 per share during the comparable 2011 period.

Direct written premiums for the quarter ended December 31, 2012 increased by $10.3 million, or 7.1%, to $155.1 million from $144.8 million for the comparable 2011 period. Direct written premiums for the year ended December 31, 2012 increased by $47.0 million, or 7.2%, to $696.2 million from $649.2 million for the comparable 2011 period. The 2012 increase occurred primarily in our personal automobile and homeowners business lines, which experienced increases of 4.9% and 4.1%, respectively, in average written premium per exposure. Written exposures remained consistent in our personal automobile line and increased by 7.2% in our homeowners line.

Net written premiums for the quarter ended December 31, 2012 increased by $9.1 million, or 6.7%, to $145.9 million from $136.8 million for the comparable 2011 period. Net written premiums for the year ended December 31, 2012 increased by $43.6 million, or 7.0%, to $663.9 million from $620.3 million for the comparable 2011 period. Net earned premiums for the quarter ended December 31, 2012 increased by $11.6 million, or 7.6%, to $165.4 million from $153.8 million for the comparable 2011 period. Net earned premiums for the year ended December 31, 2012 increased by $44.1 million, or 7.4%, to $642.5 million from $598.4 million for the comparable 2011 period. Net written and net earned premiums increased primarily due to the factors that increased direct written premiums.

Net investment income for the quarter ended December 31, 2012 increased by $1.0 million, or 10.4%, to $10.3 million from $9.3 million for the comparable 2011 period. Net investment income for the year ended December 31, 2012 increased by $1.8 million, or 4.6%, to $40.9 million from $39.1 million for the comparable 2011 period. Net effective annualized yield on the investment portfolio increased to 3.6% for the quarter ended December 31, 2012 from 3.4% for the comparable 2011 period. Net effective annual yield increased to 3.7% for the year ended December 31, 2012 from 3.6% for the comparable 2011 period. Our duration was 3.6 years at December 31, 2012, down from 3.7 years at December 31, 2011.

For the quarter ended December 31, 2012, loss and loss adjustment expenses incurred decreased by $4.2 million, or 3.6%, to $115.0 million from $119.2 million for the comparable 2011 period. For the year ended December 31, 2012, loss and loss adjustment expenses incurred decreased by $44.4 million, or 9.5%, to $422.2 million from $466.6 million for the comparable 2011 period. The decrease was primarily due to pre-tax catastrophic weather event losses incurred of $8.0 million and $10.3 million during the quarter and year ended December 31, 2012, respectively, compared to $8.4 million and $61.4 million, respectively, during the comparable 2011 periods. Loss, expense, and combined ratios calculated under U.S. generally accepted accounting principles for the quarter ended December 31, 2012 were 69.6%, 32.4%, and 102.0%, respectively, compared to 77.6%, 30.6%, and 108.2%, respectively, for the comparable 2011 period. Loss, expense, and combined ratios calculated under U.S. generally accepted accounting principles for the year ended December 31, 2012 were 65.7%, 31.2%, and 96.9%, respectively, compared to 78.0%, 29.9%, and 107.9%, respectively, for the comparable 2011 period. Total prior year favorable development included in the pre-tax results for the quarter and year ended December 31, 2012 was $5.4 million and $17.3 million, respectively, compared to $11.6 million and $36.7 million, respectively, for the comparable 2011 periods.

About Safety: Safety Insurance Group, Inc. is the parent of Safety Insurance Company, Safety Indemnity Insurance Company, and Safety Property and Casualty Insurance Company which are Boston, MA, based writers of property and casualty insurance. Safety is a leading writer of personal automobile insurance in Massachusetts.

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, 2011 Form 10-K with the SEC on March 13, 2012 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, 2011 filed with the SEC on March 13, 2012.

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)
 
December 31,
  2012     2011  
 
Assets
Investments:
Securities available for sale:
Fixed maturities, at fair value (amortized cost: $1,100,414 and $1,032,660) $ 1,165,553 $ 1,086,813
Equity securities, at fair value (cost: $21,237 and $20.431)   22,800     21,080  
Total investments 1,188,353 1,107,893
Cash and cash equivalents 35,383 37,890
Accounts receivable, net of allowance for doubtful accounts 165,750 154,143
Receivable for securities sold 835 -
Accrued investment income 10,587 10,169
Taxes recoverable 5,529 8,406
Receivable from reinsurers related to paid loss and loss adjustment expenses 6,610 3,526
Receivable from reinsurers related to unpaid loss and loss adjustment expenses 52,185 51,774
Ceded unearned premiums 16,206 14,022
Deferred policy acquisition costs 60,665 56,716
Equity and deposits in pools 16,965 14,507
Other assets   15,278     13,448  
Total assets $ 1,574,346   $ 1,472,494  
 
Liabilities
Loss and loss adjustment expense reserves $ 423,842 $ 403,872
Unearned premium reserves 353,219 329,562
Accounts payable and accrued liabilities 65,458 52,032
Payable for securities purchased 2,630 -
Payable to reinsurers 7,056 5,338
Deferred income taxes 8,202 3,014
Other liabilities   19,580     22,363  
Total liabilities   879,987     816,181  
 
Shareholders' equity

Common stock: $0.01 par value; 30,000,000 shares authorized; 17,052,034  and 17,047,104 shares issued
170 169
Additional paid-in capital 163,041 157,167
Accumulated other comprehensive income, net of taxes 43,356 35,621
Retained earnings 543,361 518,925
Treasury stock, at cost: 1,728,645 shares   (55,569 )   (55,569 )
Total shareholders' equity   694,359     656,313  
Total liabilities and shareholders' equity $ 1,574,346   $ 1,472,494  
               
Safety Insurance Group, Inc. and Subsidiaries
Consolidated Statements of Operations
(Dollars in thousands, except share and per share data)
 
Three Months Ended December 31, Twelve Months Ended December 31,
2012 2011 2012 2011
Net earned premiums $ 165,370 $ 153,748 $ 642,469 $ 598,368
Net investment income 10,319 9,344 40,870 39,060
Net realized gains on investments 749 1,658 1,975 4,360
Finance and other service income 4,784 4,639 18,553 18,370

Total revenue
181,222 169,389 703,867 660,158
 
Losses and loss adjustment expenses 115,033 119,281 422,217 466,640
Underwriting, operating and related expenses 53,536 47,004 200,138 179,157
Interest expense 22 22 88 88
Total expenses 168,591 166,307 622,443 645,885
 
Income before income taxes 12,631 3,082 81,424 14,273
Income tax (benefit) expense 3,060 (1,678) 23,354 571
Net income $ 9,571 $ 4,760 $ 58,070 $ 13,702
 
Earnings per weighted average common share:
Basic $ 0.62 $ 0.31 $ 3.80 $ 0.90
Diluted $ 0.62 $ 0.31 $ 3.80 $ 0.90
 
Cash dividends paid per common share $ 0.60 $ 0.50 $ 2.20 $ 2.00
 
Number of shares used in computing earnings per share:
Basic 15,320,265 15,186,737 15,288,346 15,165,065
Diluted 15,328,772 15,195,845 15,295,452 15,176,006
 
Safety Insurance Group, Inc. and Subsidiaries
Additional Premium Information
(Dollars in thousands)
 
Three Months Ended December 31, Twelve Months Ended December 31,
2012 2011 2012 2011
Written Premiums
Direct $ 155,130 $ 144,880 $ 696,220 $ 649,262
Assumed 4,709 4,709 17,943 16,521
Ceded (13,880) (12,832) (50,221) (45,467)
Net written premiums $ 145,959 $ 136,757 $ 663,942 $ 620,316
 
Earned Premiums
Direct $ 173,706 $ 160,900 $ 673,596 $ 626,483
Assumed 4,350 4,291 16,910 15,790
Ceded (12,686) (11,443) (48,037) (43,905)
Net earned premiums $ 165,370 $ 153,748 $ 642,469 $ 598,368

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