Safety Announces Second Quarter 2008 Results and Declares Third Quarter 2008 Dividend

Business Wire, August 4, 2008

BOSTON -- Safety Insurance Group, Inc. (NASDAQ:SAFT) today reported second quarter 2008 results. Net income for the quarter ended June 30, 2008 was $20.9 million, or $1.30 per diluted share, compared to $22.9 million, or $1.42 per diluted share, for the comparable 2007 period. Net income for the six months ended June 30, 2008 was $40.0 million, or $2.48 per diluted share, compared to $47.6 million, or $2.95 per diluted share, for the comparable 2007 period. Safety's book value per share increased to $36.19 at June 30, 2008 compared to $35.20 at December 31, 2007. Safety paid $0.40 per share in dividends to investors during the quarter ended June 30, 2008 compared to $0.25 per share during the comparable 2007 period. Safety paid $1.30 per share in dividends to investors during the year ended December 31, 2007.

Direct written premiums for the quarter ended June 30, 2008 decreased by $6.7 million, or 4.3%, to $151.8 million from $158.5 million for the comparable 2007 period. Direct written premiums for the six months ended June 30, 2008 decreased by $19.9 million, or 5.9%, to $320.1 million from $340.0 million for the comparable 2007 period. The 2008 decrease occurred primarily in our personal and commercial automobile lines, which experienced decreases of 7.5% and 2.1%, respectively, in average written premium per exposure. The decrease in our personal automobile line was largely as a result of a Massachusetts-mandated private passenger rate decrease of 11.7% effective April 1, 2007, and a further rate decrease of 6.5% effective in 2008 which we filed under the competitive pricing system recently introduced to the private passenger automobile market in Massachusetts.

Net written premiums for the quarter ended June 30, 2008 decreased by $8.3 million, or 5.3%, to $148.3 million from $156.6 million for the comparable 2007 period. Net written premiums for the six months ended June 30, 2008 decreased by $18.0 million, or 5.4%, to $312.5 million from $330.5 million for the comparable 2007 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, 2008 decreased by $6.9 million, or 4.5%, to $147.0 million from $153.9 million for the comparable 2007 period. Net earned premiums for the six months ended June 30, 2008 decreased by $9.8 million, or 3.2%, to $297.7 million from $307.5 million for the comparable 2007 period. These decreases were due to the factors that decreased direct and net written premiums. 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, 2008 was $11.2 million compared to $10.8 million for the comparable 2007 period. Net investment income for the six months ended June 30, 2008 was $22.7 million compared to $21.8 million for the comparable 2007 period. Average cash and investment securities (at cost) increased by $69.0 million, or 7.0%, to $1,049.4 million for the quarter ended June 30, 2008 from $980.4 million for the comparable 2007 period. Net effective annualized yield on the investment portfolio decreased to 4.3% during the six months ended June 30, 2008 from 4.5% during the comparable 2007 period. Our duration remained at 4.2 years at June 30, 2008, consistent with 4.2 years at December 31, 2007. Net realized gains on investments was $2.1 million for both the quarter and six months ended June 30, 2008 compared to net realized losses of $0.2 million and $0.1 million, respectively, for the comparable 2007 periods.

As of June 30, 2008, 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 continue to 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, 2008 were 62.0%, 30.3% and 92.3% compared to 60.3%, 27.9% and 88.2% for the comparable 2007 period. Loss, expense and combined ratios calculated under GAAP for the six months ended June 30, 2008 were 62.8%, 29.9% and 92.7% compared to 60.3%, 27.2% and 87.5% for the comparable 2007 period. The loss ratio increased for the quarter and year ending June 30, 2008 primarily as a result of a decrease in our personal automobile earned premiums per exposure. Total prior year favorable development included in the pre-tax results for the quarter and six months ended June 30, 2008 was $5.5 million and $14.7 million, respectively, compared to prior year favorable development of $5.4 million and $14.7 million, respectively, for the comparable 2007 periods.