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

Business Wire, Nov 3, 2008

BOSTON -- Safety Insurance Group, Inc. (NASDAQ:SAFT) today reported third quarter 2008 results. Net income for the quarter ended September 30, 2008 was $18.4 million, or $1.14 per diluted share, compared to $22.9 million, or $1.42 per diluted share, for the comparable 2007 period. Net income for the nine months ended September 30, 2008 was $58.3 million, or $3.62 per diluted share, compared to $70.5 million, or $4.38 per diluted share, for the comparable 2007 period. Safety's book value per share increased to $36.40 at September 30, 2008 compared to $35.20 at December 31, 2007. Safety paid $0.40 per share in dividends to investors during the quarters ended September 30, 2008 and 2007. Safety paid $1.30 per share in dividends to investors during the year ended December 31, 2007.

Direct written premiums for the quarter ended September 30, 2008 decreased by $12.8 million, or 8.4%, to $139.4 million from $152.2 million for the comparable 2007 period. Direct written premiums for the nine months ended September 30, 2008 decreased by $32.7 million, or 6.6%, to $459.5 million from $492.2 million for the comparable 2007 period. The 2008 decrease occurred primarily in our personal and commercial automobile lines, which experienced decreases of 7.6% and 2.6%, 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 6.6% effective in 2008 which we filed under the competitive pricing system introduced to the private passenger automobile market in Massachusetts, effective April 1, 2008.

Net written premiums for the quarter ended September 30, 2008 decreased by $16.1 million, or 10.8%, to $132.6 million from $148.7 million for the comparable 2007 period. Net written premiums for the nine months ended September 30, 2008 decreased by $34.1 million, or 7.1%, to $445.2 million from $479.3 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 September 30, 2008 decreased by $11.3 million, or 7.4%, to $141.3 million from $152.6 million for the comparable 2007 period. Net earned premiums for the nine months ended September 30, 2008 decreased by $21.1 million, or 4.6%, to $439.0 million from $460.1 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 September 30, 2008 was $11.7 million compared to $11.0 million for the comparable 2007 period. Net investment income for the nine months ended September 30, 2008 was $34.4 million compared to $32.8 million for the comparable 2007 period. Average cash and investment securities (at cost) increased by $64.5 million, or 6.5%, to $1,055.3 million for the quarter ended September 30, 2008 from $990.8 million for the comparable 2007 period. Net effective annualized yield on the investment portfolio was 4.4% during the nine months ended September 30, 2008, the same as during the comparable 2007 period. Our duration decreased to 3.9 years at September 30, 2008, down from 4.2 years at December 31, 2007. Net realized losses on investments was $1.0 million for the quarter ended September 30, 2008, primarily consisting of an impairment write-down of one American International Group, Inc. fixed maturity security, compared to net realized gains of $0.1 million for the comparable 2007 period. Net realized gains for the nine months ended September 30, 2008 was $1.1 million compared to less than $0.1 million for the comparable 2007 period.

As of September 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 believe our current portfolio position and strong underlying operating cash flows provide sufficient liquidity to meet our needs. As of September 30, 2008, we maintained $107.8 million in cash and cash equivalents and we have no outstanding debt.

Loss, expense and combined ratios calculated under U.S. generally accepted accounting principles ("GAAP") for the quarter ended September 30, 2008 were 62.1%, 30.5% and 92.6% compared to 60.8%, 27.9% and 88.7% for the comparable 2007 period. Loss, expense and combined ratios calculated under GAAP for the nine months ended September 30, 2008 were 62.6%, 30.1% and 92.7% compared to 60.4%, 27.5% and 87.9% for the comparable 2007 period. The loss ratio increased for the quarter and nine months ending September 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 nine months ended September 30, 2008 was $8.2 million and $22.9 million, respectively, compared to prior year favorable development of $4.6 million and $19.3 million, respectively, for the comparable 2007 periods.