Safety Announces Second Quarter 2007 Results and Raises Third Quarter 2007 Dividend

Business Wire, August 3, 2007

Board Authorizes Share Buyback of $30 Million

BOSTON -- Safety Insurance Group, Inc. (NASDAQ:SAFT) today reported second quarter 2007 results. Net income for the quarter ended June 30, 2007 was $22.9 million, or $1.42 per diluted share, compared to $29.1 million, or $1.81 per diluted share, for the comparable 2006 period. Net income for the six months ended June 30, 2007 was $47.6 million, or $2.95 per diluted share, compared to $59.9 million, or $3.75 per diluted share, for the comparable 2006 period. Safety's book value per share increased to $32.66 at June 30, 2007 compared to $30.84 at December 31, 2006. Safety paid $0.25 per share in dividends to investors during the quarter ended June 30, 2007 compared to $0.18 per share during the comparable 2006 period. Safety paid $0.86 per share in dividends to investors during the year ended December 31, 2006.

The Board of Directors today approved and declared an increase in the quarterly cash dividend from $0.25 to $0.40 per share on the issued and outstanding common stock, payable on September 14, 2007 to shareholders of record at the close of business on September 3, 2007.

The Board of Directors today also approved a share repurchase program of up to $30 million of Safety's outstanding common shares. Under the program, Safety may repurchase shares of its common stock for cash in public or private transactions, in the open market or otherwise, at management's discretion. The timing of such repurchases and actual number of shares repurchased will depend on a variety of factors including price, market conditions and applicable regulatory and corporate requirements. The program does not require Safety to repurchase any specific number of shares and may be modified, suspended or terminated at any time without prior notice.

Direct written premiums for the quarter ended June 30, 2007 decreased by $4.0 million, or 2.4%, to $158.5 million from $162.5 million for the comparable 2006 period. Direct written premiums for the six months ended June 30, 2007 decreased by $0.5 million, or 0.1%, to $340.0 million from $340.5 million for the comparable 2006 period. The 2007 decrease occurred primarily in our personal and commercial automobile lines, which experienced decreases in average written premium of 3.3% and 2.4%, respectively. Partially offsetting these decreases was an increase in average written premium in our homeowners line of 5.9%.

Net written premiums for the quarter ended June 30, 2007 decreased by $5.7 million, or 3.5%, to $156.6 million from $162.3 million for the comparable 2006 period. Net written premiums for the six months ended June 30, 2007 decreased by $5.1 million, or 1.5%, to $330.5 million from $335.6 million for the comparable 2006 period. These decreases were due to the factors that decreased direct written premiums combined with decreases in premiums assumed from Commonwealth Automobile Reinsurers ("CAR"), and partially offset by decreases in premiums ceded to CAR. Net earned premiums for the quarter ended June 30, 2007 decreased by $2.4 million, or 1.5%, to $153.9 million from $156.3 million for the comparable 2006 period. Net earned premiums for the six months ended June 30, 2007 decreased by $6.5 million, or 2.1%, to $307.5 million from $314.0 million for the comparable 2006 period. These decreases were primarily as a result of decreases in premiums assumed from CAR. The effect of assumed and ceded premiums on net written and net earned premiums is presented in the attached tables.

Net investment income for the quarter ended June 30, 2007 was $10.8 million compared to $9.8 million for the comparable 2006 period. Net investment income for the six months ended June 30, 2007 was $21.8 million compared to $19.2 million for the comparable 2006 period. Average cash and investment securities (at cost) increased by $85.4 million, or 9.5%, to $980.4 million for the quarter ended June 30, 2007 from $895.0 million for the comparable 2006 period. Net effective annualized yield on the investment portfolio increased to 4.5% during the six months ended June 30, 2007 from 4.3% during the comparable 2006 period. Our duration decreased to 4.4 years at June 30, 2007 from 4.6 years at December 31, 2006. Net realized losses on investments was $0.1 million for the six months ended June 30, 2007 compared to $0.3 million for the comparable 2006 period.

As of June 30, 2007, our portfolio of fixed maturity investments was comprised entirely of investment grade securities. We hold no subprime mortgage debt securities. All of our mortgage-backed securities are either U.S. Government or Agency guaranteed or are rated Aaa/AAA. We expect the recent subprime mortgage market deterioration to have little or no effect on our portfolio.

Loss, expense and combined ratios calculated under U.S. generally accepted accounting principles ("GAAP") for the quarter ended June 30, 2007 were 60.3%, 27.9% and 88.2% compared to 54.1%, 26.7% and 80.8% for the comparable 2006 period. Loss, expense and combined ratios calculated under GAAP for the six months ended June 30, 2007 were 60.3%, 27.2% and 87.5% compared to 54.2%, 26.2% and 80.4% for the comparable 2006 period. The loss ratio increased as a result of an increase in personal and commercial automobile claim frequency combined with decreases in favorable loss development. Total prior year favorable development included in the pre-tax results for the quarter and six months ended June 30, 2007 was $5.4 million and $14.7 million, respectively, compared to prior year favorable development of $12.1 million and $25.4 million, respectively, for the comparable 2006 periods.