Safety Announces Fourth Quarter 2004 Results

Safety Announces Fourth Quarter 2004 Results

    Business Editors/Insurance Writers

    BOSTON--(BUSINESS WIRE)--March 10, 2005--Safety Insurance Group, Inc. (NASDAQ:SAFT) today reported fourth quarter 2004 results. Net income for the quarter ended December 31, 2004 was $13.2 million, or $0.84 per diluted share, compared to $5.7 million, or $0.37 per diluted share, for the comparable 2003 period. Net income for the year ended December 31, 2004 was $45.0 million, or $2.90 per diluted share, compared to $28.5 million, or $1.86 per diluted share, for 2003. Safety's book value per share increased to $19.70 at December 31, 2004 after paying $0.44 per share in dividends to investors during 2004, compared to $17.56 at December 31, 2003 after paying $0.34 per share in dividends during 2003.
    Direct written premiums for the quarter ended December 31, 2004 increased by $12.7 million, or 10.7%, to $131.4 million from $118.7 million for the comparable 2003 period. Direct written premiums for the year ended December 31, 2004 increased by $56.8 million, or 9.9%, to $628.3 million from $571.5 million for 2003. The 2004 increase occurred primarily in our personal automobile line, which experienced a 6.1% increase in average written premium and a 3.5% increase in written exposures. In addition, our commercial automobile line's average written premium increased by 6.0% and had a 5.6% increase in written exposures, while our homeowners line's average written premium increased by 8.3%, which was partly offset by a 1.7% decrease in written exposures.
    Net written premiums for the quarter ended December 31, 2004 increased by $13.5 million, or 11.5%, to $130.4 million from $116.9 million for the comparable 2003 period. Net written premiums for the year ended December 31, 2004 increased by $51.9 million, or 9.2%, to $618.9 million from $567.0 million for 2003. This was primarily due to the increase in direct written premiums.
    Net earned premiums for the quarter ended December 31, 2004 increased by $13.2 million, or 9.5%, to $152.3 million from $139.1 million for the comparable 2003 period. Net earned premiums for the year ended December 31, 2004 increased by $52.1 million, or 9.6%, to $592.3 million from $540.2 million for 2003. This was primarily due to the factors that increased direct written premiums, including increased premium rates on personal automobile, commercial automobile and homeowners product lines.
    Investment income for the quarter ended December 31, 2004 was $6.9 million compared to $6.4 million for the comparable 2003 period. Investment income for the year ended December 31, 2004 was $27.2 million compared to $26.1 million for 2003. Average cash and investment securities (at amortized cost) increased by $95.7 million, or 15.0%, to $734.6 million for the year ended December 31, 2004 from $638.9 million for 2003 due to a $53.5 million increase in average cash and a $42.2 million increase in average securities. Net effective yield on the investment portfolio decreased to 3.7% during the year ended December 31, 2004 from 4.1% during 2003 due to management's investment strategy to shorten the portfolio duration, shift to higher rated securities, and increase tax-exempt holdings. Our duration decreased to 3.4 years at December 31, 2004 from 4.2 years at December 31, 2003.
    Net realized losses on investments were $0.1 million for the quarter ended December 31, 2004 compared to a $0.2 million gain for 2003. Net realized gains on investments decreased to $1.3 million for the year ended December 31, 2004 from $10.1 million for 2003.
    U. S. Generally accepted accounting principles ("GAAP") loss, expense and combined ratios for the quarter ended December 31, 2004 were 68.8%, 25.2% and 94.0% compared to 78.4%, 23.0% and 101.4% for the comparable 2003 period. GAAP loss, expense and combined ratios for the year ended December 31, 2004 were 71.8%, 24.5% and 96.3% compared to 77.9%, 24.2% and 102.1% for 2003. The quarter and year ended December 31, 2004 combined ratios decreased by 7.4% and 5.8%, respectively, from the comparable 2003 periods primarily as a result of decreases in the loss ratios due to an increase in average written premium, a decrease in claim frequency in our personal automobile, commercial automobile and homeowners lines of business and favorable loss development primarily due to an improvement in Commonwealth Automobile Reinsurers ("CAR") prior year results.
    On December 31, 2004, the Massachusetts Commissioner of Insurance approved new rules governing CAR (the "Approved Rules"). In our press release of January 14, 2005, we updated our estimate of the financial impact the Approved Rules may have on us and we stated that a lawsuit had been filed by Commerce Insurance Company that seeks an order permanently enjoining enforcement and/or implementation of the Approved Rules. Several insurance producers have been permitted to intervene as plaintiffs in this lawsuit and on February 1, 2005 these producers obtained an order from the Massachusetts Superior Court staying the enforcement or implementation of the Approved Rules pending the outcome of this litigation. As a result, the Approved Rules are not currently in effect. At the present time we are unable to predict the outcome of this litigation.
    On February 17, 2005, the Board of Directors approved and declared a $0.12 per share quarterly cash dividend on the issued and outstanding common stock, which will be paid on March 15, 2005, to shareholders of record at the close of business on March 1, 2005.

    About Safety: Safety Insurance Group, Inc. is the parent of Safety Insurance Company and Safety Indemnity 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 expects to file its December 31, 2004 Form 10-K no later than March 16, 2005 and urges shareholders to refer to that 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 might include one or more of the following, among others:

--	Projections of revenues, income, earnings per share, capital expenditures, dividends, capital structure or other financial items;
--	Descriptions of plans or objectives of management for future operations, products or services;
--	Forecasts of future economic performance, liquidity, need for funding and income; and
--	Descriptions of assumptions underlying or relating to any of the foregoing.

    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 Approved Rules are successfully appealed by Commerce or one or more of our other competitors, the possibility that the Commissioner 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 prospectus in the registration statement on Form S-1 filed with the SEC on November 22, 2002.

    Some other factors, such as market, operational, liquidity, interest rate, equity and other risks, are described elsewhere in our Quarterly Reports on Form 10-Q and our Annual Reports on Form 10-K. Factors relating to the regulation and supervision of our Company are also described or incorporated in our Quarterly Reports on Form 10-Q and our Company's Annual Report on Form 10-K filed with the SEC on March 15, 2004. There are other factors besides those described or incorporated in this release or in the reports on Form 10-Q and Form 10-K that could cause actual conditions, events or results to differ from those in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We do not undertake any obligation to update publicly or revise any forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.

Safety Insurance Group, Inc. and Subsidiaries Consolidated Balance Sheets (Dollars in thousands, except share data)

December 31, ----------------------- 2004 2003 ----------- ----------- Assets Investment securities available for sale: Fixed maturities, at fair value (amortized cost: $650,159 and $654,175, respectively) $ 663,509 $ 673,636 Equity securities, at fair value (cost: $1,037 and $0, respectively) 1,087 -- ----------- ----------- Total investment securities 664,596 673,636 Cash and cash equivalents 155,673 26,284 Accounts receivable, net of allowance for doubtful accounts 150,451 134,145 Accrued investment income 7,008 7,224 Taxes receivable -- 1,484 Receivable from reinsurers related to paid loss and loss adjustment expenses 18,980 47,503 Receivable from reinsurers related to unpaid loss and loss adjustment expenses 84,167 73,539 Prepaid reinsurance premiums 43,402 33,474 Deferred policy acquisition costs 42,919 40,177 Deferred income taxes 12,679 8,692 Equity and deposits in pools 23,678 26,989 Other assets 2,892 3,149 ----------- ----------- Total assets $1,206,445 $1,076,296 =========== ===========

Liabilities Loss and loss adjustment expense reserves $ 450,897 $ 383,551 Unearned premium reserves 337,786 301,227 Accounts payable and accrued liabilities 43,684 37,497 Taxes payable 3,509 -- Outstanding claims drafts 16,832 20,045 Payable to reinsurers 16,990 45,338 Payable for securities purchased 10,972 -- Capital lease obligations 485 662 Debt 19,956 19,956 ----------- ----------- Total liabilities 901,111 808,276 ----------- -----------

Commitments and contingencies

Shareholders' equity Common stock: $0.01 par value; 30,000,000 shares authorized; and 15,500,052 and 15,259,991 shares issued and outstanding, respectively 155 153 Additional paid-in capital 114,070 111,074 Accumulated other comprehensive income, net of taxes 8,709 12,650 Promissory notes receivable from management -- (34) Retained earnings 182,400 144,177 ----------- ----------- Total shareholders' equity 305,334 268,020 ----------- ----------- Total liabilities and shareholders' equity $1,206,445 $1,076,296 =========== ===========

Safety Insurance Group, Inc. and Subsidiaries Consolidated Statements of Operations (Dollars in thousands, except per share and share data)

Quarter Ended Year Ended December 31, December 31, -------------------------------------------------- 2004 2003 2004 2003 ------------ ------------ ------------ -----------

Net earned premiums $ 152,309 $ 139,065 $ 592,292 $ 540,248 Investment income 6,937 6,353 27,259 26,086 Net realized (losses) gains on investments (42) 221 1,274 10,051 Finance and other service income 3,917 3,716 15,615 15,409 ------------ ------------ ------------ ----------- Total revenue 163,121 149,355 636,440 591,794 ------------ ------------ ------------ -----------

Losses and loss adjustment expenses 104,852 108,977 425,061 420,969 Underwriting, operating and related expenses 38,426 32,009 145,075 130,636 Interest expenses 192 150 672 646 ------------ ------------ ------------ ----------- Total expenses 143,470 141,136 570,808 552,251 ------------ ------------ ------------ -----------

Income before income taxes 19,651 8,219 65,632 39,543 Income tax expense 6,488 2,478 20,642 11,061 ------------ ------------ ------------ ----------- Net income $ 13,163 $ 5,741 $ 44,990 $ 28,482 ============ ============ ============ ===========

Earnings per weighted average common share: Basic $ 0.85 $ 0.38 $ 2.94 $ 1.87 ============ ============ ============ =========== Diluted $ 0.84 $ 0.37 $ 2.90 $ 1.86 ============ ============ ============ ===========

Cash dividends paid per common share $ 0.12 $ 0.10 $ 0.44 $ 0.34 ============ ============ ============ ===========

Weighted average number of common shares outstanding: Basic 15,413,796 15,259,991 15,315,877 15,259,991 ============ ============ ============ =========== Diluted 15,666,663 15,385,024 15,526,892 15,340,047 ============ ============ ============ ===========

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CONTACT: Safety Insurance Group, Inc. Office of Investor Relations, 877-951-2522 InvestorRelations@SafetyInsurance.com

KEYWORD: MASSACHUSETTS INDUSTRY KEYWORD: INSURANCE EARNINGS SOURCE: Safety Insurance Group, Inc.

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