Safety Announces Fourth Quarter 2008 Results

Business Wire, March 09, 2009

BOSTON -- Safety Insurance Group, Inc. (NASDAQ:SAFT) today reported fourth quarter 2008 results. Net income for the quarter ended December 31, 2008 was $11.9 million, or $0.74 per diluted share, compared to $16.9 million, or $1.05 per diluted share, for the comparable 2007 period. Net income for the year ended December 31, 2008 was $70.3 million, or $4.36 per diluted share, compared to $87.4 million, or $5.43 per diluted share, for the comparable 2007 period. Safety’s book value per share increased to $37.17 at December 31, 2008 compared to $35.20 at December 31, 2007. Safety paid $0.40 per share in dividends to investors during the quarters ended December 31, 2008 and 2007. Safety paid $1.60 per share in dividends to investors during the year ended December 31, 2008 compared to $1.30 per share during the comparable 2007 period.

Direct written premiums for the quarter ended December 31, 2008 decreased by $13.6 million, or 10.7%, to $114.0 million from $127.6 million for the comparable 2007 period. Direct written premiums for the year ended December 31, 2008 decreased by $46.4 million, or 7.5%, to $573.5 million from $619.9 million for the comparable 2007 period. The 2008 decrease occurred primarily in our personal and commercial automobile lines, which experienced decreases of 7.9% and 2.3%, respectively, in average written premium per exposure. The decrease in our personal automobile line was largely as a result of rate decreases totaling 6.7% which we filed under the competitive pricing system introduced to the private passenger automobile market in Massachusetts beginning April 1, 2008.

Net written premiums for the quarter ended December 31, 2008 decreased by $13.6 million, or 11.2%, to $107.7 million from $121.3 million for the comparable 2007 period. Net written premiums for the year ended December 31, 2008 decreased by $47.7 million, or 7.9%, to $552.9 million from $600.6 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 December 31, 2008 decreased by $11.5 million, or 7.7%, to $137.6 million from $149.1 million for the comparable 2007 period. Net earned premiums for the year ended December 31, 2008 decreased by $32.6 million, or 5.4%, to $576.6 million from $609.2 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 December 31, 2008 was $11.3 million compared to $11.5 million for the comparable 2007 period. Net investment income for the year ended December 31, 2008 was $45.8 million compared to $44.3 million for the comparable 2007 period. Average cash and investment securities (at cost) increased by $58.2 million, or 5.8%, to $1,060.5 million for the year ended December 31, 2008 from $1,002.3 million for the comparable 2007 period. Net effective yield on the investment portfolio was 4.3% during the year ended December 31, 2008, compared to 4.4% during the comparable 2007 period. Our duration decreased to 3.2 years at December 31, 2008, from 4.2 years at December 31, 2007.

As of December 31, 2008, our portfolio of fixed maturity investments was comprised entirely of investment grade securities. We continue to 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 believe that our current portfolio position and strong underlying operating cash flows provide sufficient liquidity to meet our needs. As of December 31, 2008, we maintained $143.4 million in short term securities, 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 December 31, 2008 were 69.2%, 29.7% and 98.9% compared to 64.7%, 29.7% and 94.4% for the comparable 2007 period. Loss, expense and combined ratios calculated under GAAP for the year ended December 31, 2008 were 64.1%, 30.0% and 94.1% compared to 61.5%, 28.0% and 89.5% for the comparable 2007 period. The loss ratio increased for the quarter and year ending December 31, 2008 primarily as a result of a decrease in our personal automobile earned premiums per exposure. In addition, for the quarter ended December 31, 2008, the pre-tax net impact of catastrophes was an estimated $4.0 million in losses related to the December 2008 New England ice storm compared to no catastrophe losses for the comparable 2007 period. Total prior year favorable development included in the pre-tax results for the quarter and year ended December 31, 2008 was $13.0 million and $35.9 million, respectively, compared to prior year favorable development of $11.5 million and $30.8 million, respectively, for the comparable 2007 periods.