Safety Announces Third Quarter 2012 Results and Declares Fourth Quarter 2012 Dividend

Safety Announces Third Quarter 2012 Results and Declares Fourth Quarter 2012 Dividend

BOSTON--(BUSINESS WIRE)-- Safety Insurance Group, Inc. (NAS: SAFT) today reported third quarter 2012 results. Net income for the quarter ended September 30, 2012 was $14.3 million, or $0.94 per diluted share, compared to net income of $8.8 million, or $0.58 per diluted share, for the comparable 2011 period. Net income for the nine months ended September 30, 2012 was $48.5 million, or $3.17 per diluted share, compared to $8.9 million, or $0.59 per diluted share, for the comparable 2011 period. Safety's book value per share increased to $45.46 at September 30, 2012 from $43.22 at December 31, 2011. Safety paid $0.60 per share in dividends to investors during the quarter ended September 30, 2012, compared to $0.50 per share during the comparable 2011 period. Safety paid $2.00 per share in dividends to investors during the year ended December 31, 2011.

Direct written premiums for the quarter ended September 30, 2012 increased by $11.9 million, or 7.1%, to $179.0 million from $167.1 million for the comparable 2011 period. Direct written premiums for the nine months ended September 30, 2012 increased by $36.7 million, or 7.3%, to $541.1 million from $504.4 million for the comparable 2011 period. The 2012 increases occurred primarily in our personal automobile and homeowners business lines, which experienced increases of 5.0%, and 3.8%, respectively, in average written premium per exposure. Written exposures remained consistent in our personal automobile line and increased by 8.0% in our homeowners business line.


Net written premiums for the quarter ended September 30, 2012 increased by $13.5 million, or 8.5%, to $171.7 million from $158.2 million for the comparable 2011 period. Net written premiums for the nine months ended September 30, 2012 increased by $34.5 million, or 7.1%, to $518.0 million from $483.5 million for the comparable 2011 period. Net earned premiums for the quarter ended September 30, 2012 increased by $11.2 million, or 7.4%, to $162.5 million from $151.3 million for the comparable 2011 period. Net earned premiums for the nine months ended September 30, 2012 increased by $32.5 million, or 7.3%, to $477.1 million from $444.6 million for the comparable 2011 period. Net written and net earned premiums increased primarily due to direct written premium increases in our personal automobile and homeowners business lines as discussed above.

Net investment income for the quarter ended September 30, 2012 was $10.1 million, consistent with the comparable 2011 period. Net investment income for the nine months ended September 30, 2012 increased by $0.8 million, or 2.8%, to $30.5 million from $29.7 million for the comparable 2011 period. Net effective annualized yield on the investment portfolio for the quarter ended September 30, 2012 was 3.6%, down from 3.7% for the comparable 2011 period. Net effective annualized yield on the investment portfolio for the nine months ended September 30, 2012 was 3.7%, the same as the comparable 2011 period. Our duration was 3.6 years at September 30, 2012, down from 3.7 years at December 31, 2011.

For the quarter ended September 30, 2012, loss and loss adjustment expenses incurred decreased by $5.1 million, or 4.6%, to $106.4 million from $111.5 million for the comparable 2011 period. For the nine months ended September 30, 2012, loss and loss adjustment expenses incurred decreased by $40.2 million, or 11.6%, to $307.2 million from $347.4 million for the comparable 2011 period. The decrease was primarily due to pre-tax catastrophic weather event losses incurred of $2.4 million during the quarter and nine months ended September 30, 2012, compared to $12.4 million and $53.0 million, respectively, during the comparable 2011 periods. Loss, expense, and combined ratios calculated under U.S. generally accepted accounting principles for the quarter ended September 30, 2012 were 65.5%, 30.8%, and 96.3%, respectively, compared to 73.7%, 30.1%, and 103.8%, respectively, for the comparable 2011 period. Loss, expense, and combined ratios calculated under U.S. generally accepted accounting principles for the nine months ended September 30, 2012 were 64.4%, 30.7%, and 95.1%, respectively, compared to 78.1%, 29.7%, and 107.8%, respectively, for the comparable 2011 period. Total prior year favorable development included in the pre-tax results for the quarter and nine months ended September 30, 2012 was $4.3 million and $11.9 million, respectively, compared to $6.3 million and $25.1 million, respectively, for the comparable 2011 periods.

Today, our Board of Directors approved and declared a quarterly cash dividend of $0.60 per share on the issued and outstanding common stock, payable on December 14, 2012 to shareholders of record at the close of business on December 3, 2012.

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)

September 30,

December 31,

2012

2011

(Unaudited)

Assets

Investments:

Securities available for sale:

Fixed maturities, at fair value (amortized cost: $1,100,759 and $1,032,660)

$

1,171,464

$

1,086,813

Equity securities, at fair value (cost: $21,077 and $20,431)

22,833

21,080

Total investments

1,194,297

1,107,893

Cash and cash equivalents

33,697

37,890

Accounts receivable, net of allowance for doubtful accounts

180,333

154,143

Receivable for securities sold

866

-

Accrued investment income

10,092

10,169

Taxes recoverable

3,551

8,406

Receivable from reinsurers related to paid loss and loss adjustment expenses

8,762

3,526

Receivable from reinsurers related to unpaid loss and loss adjustment expenses

52,115

51,774

Ceded unearned premiums

15,012

14,022

Deferred policy acquisition costs

63,905

56,716

Equity and deposits in pools

16,567

14,507

Other assets

14,242

13,448

Total assets

$

1,593,439

$

1,472,494

Liabilities

Loss and loss adjustment expense reserves

$

413,641

$

403,872

Unearned premium reserves

371,437

329,562

Accounts payable and accrued liabilities

48,720

52,032

Payable for securities purchased

18,198

-

Payable to reinsurers

14,877

5,338

Deferred income taxes

9,745

3,014

Other liabilities

20,412

22,363

Total liabilities

897,030

816,181

Shareholders' equity

Common stock: $0.01 par value; 30,000,000 shares authorized;

17,047,104 and 16,915,432 shares issued

170

169

Additional paid-in capital

161,726

157,167

Accumulated other comprehensive income, net of taxes

47,099

35,621

Retained earnings

542,983

518,925

Treasury stock, at cost: 1,728,645 shares

(55,569

)

(55,569

)

Total shareholders' equity

696,409

656,313

Total liabilities and shareholders' equity

$

1,593,439

$

1,472,494

Safety Insurance Group, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

(Dollars in thousands, except share and per share data)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2012

2011

2012

2011

Net earned premiums

$

162,493

$

151,254

$

477,099

$

444,620

Net investment income

10,142

10,081

30,551

29,716

Net realized gains on investments

153

1,844

1,226

2,702

Finance and other service income

4,743

4,856

13,769

13,731

Total revenue

177,531

168,035

522,645

490,769

Losses and loss adjustment expenses

106,445

111,545

307,184

347,359

Underwriting, operating and related expenses

50,054

45,453

146,602

132,153

Interest expense

22

23

66

66

Total expenses

156,521

157,021

453,852

479,578

Income before income taxes

21,010

11,014

68,793

11,191

Income tax expense

6,676

2,204

20,294

2,249

Net income

$

14,334

$

8,810

$

48,499

$

8,942

Earnings per weighted average common share:

Basic

$

0.94

$

0.58

$

3.17

$

0.59

Diluted

$

0.94

$

0.58

$

3.17

$

0.59

Cash dividends paid per common share

$

0.60

$

0.50

$

1.60

$

1.50

Number of shares used in computing earnings per share:

Basic

15,312,178

15,187,430

15,277,560

15,157,762

Diluted

15,319,885

15,195,819

15,284,400

15,169,738

Safety Insurance Group, Inc. and Subsidiaries

Additional Premium Information

(Unaudited)

(Dollars in thousands)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2012

2011

2012

2011

Written Premiums

Direct

$

179,007

$

167,168

$

541,090

$

504,382

Assumed

4,505

3,115

13,234

11,812

Ceded

(11,820

)

(12,068

)

(36,341

)

(32,635

)

Net written premiums

$

171,692

$

158,215

$

517,983

$

483,559

Earned Premiums

Direct

$

170,616

$

158,631

$

499,890

$

465,583

Assumed

4,139

3,609

12,560

11,499

Ceded

(12,262

)

(10,986

)

(35,351

)

(32,462

)

Net earned premiums

$

162,493

$

151,254

$

477,099