8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

August 1, 2018

Date of Report (Date of earliest event reported)

SAFETY INSURANCE GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware	000-50070	13-4181699
(State or other jurisdiction	(Commission	(IRS Employer
of incorporation)	File Number)	Identification No.)

20 Custom House Street, Boston, Massachusetts 02110

(Address of principal executive offices including zip code)

(617) 951-0600

(Registrant's telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Item 2.02 Results of Operations and Financial Condition.

In a press release dated August 1, 2018, Safety Insurance Group, Inc. (the “Registrant”) announced its second quarter 2018 results.  The Registrant’s press release dated August 1, 2018 is furnished herewith as Exhibit 99.1.

Item 9.01 Financial Statements and Exhibits.

(d)  Exhibits.  The following exhibit is furnished herewith:

Exhibit Number	Description
99.1	Text of press release issued by the Registrant dated August 1, 2018.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: August 1, 2018	Safety Insurance Group, Inc.  (Registrant)
	By:	/s/ WILLIAM J. BEGLEY, JR
		William J. Begley, Jr.
		V.P., Chief Financial Officer and Secretary

EX-99.1

 Exhibit 99.1

SAFETY ANNOUNCES SECOND QUARTER 2018 RESULTS AND DECLARES THIRD QUARTER 2018 DIVIDEND

Boston, Massachusetts, August 1, 2018.  Safety Insurance Group, Inc. (NASDAQ:SAFT) today reported second quarter 2018 results. Net income for the quarter ended June 30, 2018 was $26.8 million, or $1.75 per diluted share, compared to net income of $21.1 million, or $1.39 per diluted share, for the comparable 2017 period. Net income for the six months ended June 30, 2018 was $35.9 million, or $2.35 per diluted share, compared to net income of $33.1 million, or $2.18 per diluted share, for the comparable 2017 period. Non-generally accepted accounting principles (“non-GAAP”) operating income, as defined below, for the quarter ended June 30, 2018 was $1.81 per diluted share, compared to $1.37 per diluted share, for the comparable 2017 period. Non-GAAP operating income for the six months ended June 30, 2018 was $2.52 per diluted share, compared to $2.09 per diluted share, for the comparable 2017 period due to a decline in net unrealized gains. Safety’s book value per share decreased to $45.56 at June 30, 2018 from $46.06 at December 31, 2017.  Safety paid $0.80 and $0.70 per share in dividends to investors during the quarters ended June 30, 2018 and 2017,  respectively. Safety paid $3.00 per share in dividends to investors during the year ended December 31, 2017.

Direct written premiums for the quarter ended June 30,  2018 increased  by $6.0 million, or 2.6%, to $233.0 million from $227.0 million for the comparable 2017 period. Direct written premiums for the six months ended June 30, 2018 increased by $10.1 million, or 2.4%, to $436.8 million from $426.7 million for the comparable 2017 period. The 2018 increase occurred primarily in our commercial automobile and homeowners lines of business. 

Net written premiums for the quarter ended June 30, 2018 increased by $1.7 million, or 0.8%, to $215.5 million from $213.8 million for the comparable 2017 period. Net written premiums for the six months ended June 30, 2018 increased by $0.8 million, or 0.2%, to $405.5 million from $404.7 million for the comparable 2017 period. Net earned premiums for the quarter ended June 30, 2018 increased by $1.3 million, or 0.7%, to $194.1 million from $192.8 million for the comparable 2017 period.  Net earned premiums for the six months ended June 30, 2018 increased by $3.6 million, or 0.9%, to $386.1 million from $382.5 million for the comparable 2017 period. Net written and net earned premiums increased primarily due to increases in our commercial automobile and homeowners business as discussed above.

For the quarter ended June 30,  2018, loss and loss adjustment expenses incurred decreased by $3.8 million, or  3.3%, to $113.2 million from $117.0 million for the comparable 2017 period. For the six months ended June 30, 2018, loss and loss adjustment expenses incurred increased by $5.4 million, or 2.2%, to $250.9 million from $245.5 million for the comparable 2017 period. Loss, expense, and combined ratios calculated under U.S. generally accepted accounting principles for the quarter ended June 30,  2018 were 58.3%,  31.7%, and 90.0%, respectively, compared to 60.7%,  31.6%, and 92.3%, respectively, for the comparable 2017 period. Loss, expense, and combined ratios calculated under U.S. generally accepted accounting principles for the six months ended June 30, 2018 were 65.0%,  31.7%, and 96.7%, respectively, compared to 64.2%,  31.5%, and 95.7%, respectively, for the comparable 2017 period. Total prior year favorable development included in the pre-tax results for the quarter ended June 30, 2018 was $12.1 million compared to $10.0 million for the comparable 2017 period. Total prior year favorable development included in the pre-tax results for the six months ended June 30, 2018 was $26.3 million compared to $20.4 million for the comparable 2017 period.

Net investment income for the quarter ended June 30, 2018 increased by $0.5 million, or 4.9%, to $10.2 million from $9.7 million for the comparable 2017 period.  Net investment income for the six months ended June 30, 2018 increased by $1.9 million, or 10.1%, to $20.7 million from $18.8 million for the comparable 2017 period. The increase is a result of fixed maturity amortization and an increase in the average invested asset balance compared to the prior year.Net effective annualized yield on the investment portfolio for the quarter ended June 30, 2018 was 3.2% compared to 3.1% for the comparable 2017 period. Net effective annualized yield on the investment portfolio for the six months ended June 30, 2018 was 3.2% compared to 3.0% for the comparable 2017 period.  Our duration was 3.9 years at June 30, 2018 compared to 3.7 years at December 31, 2017.

Today,  our Board of Directors approved a $0.80 per share quarterly cash dividend on its issued and outstanding common stock payable on September  14, 2018 to shareholders of record at the close of business on September 4, 2018.

Recently Adopted Accounting Standard

As disclosed in Safety’s Annual Report on Form 10-K for the year ended December 31, 2017, accounting guidance for financial instruments changed in 2018 under ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. We adopted this accounting standard update, effective January 1, 2018, using a cumulative-effect adjustment. This adjustment moved the historical unrealized gains and losses, net of tax, on the equity portfolio from accumulated other comprehensive earnings to retained earnings, but had no impact on overall shareholders’ equity. In addition, for 2018 and forward, the change in fair value for equity securities is required to be recognized through net income rather than through other comprehensive income. As defined below, we exclude these unrealized gains and losses in arriving at non-GAAP operating income and non-GAAP operating income per diluted share. For the quarter ended June 30, 2018, a decrease of $2.7 million for the change in unrealized gains  was recognized within income before income taxes and the income tax expense was reduced by $0.6 million. For the six months ended June 30, 2018, a decrease of $6.2 million for the change in unrealized gains was recognized within income before income taxes and the income tax expense was reduced by $1.3 million.

Non-GAAP Measures

Management has included certain non-GAAP financial measures in presenting the Company’s results. Management believes that these non-GAAP measures better explain the Company’s results of operations and allow for a more complete understanding of the underlying trends in the Company’s business. These measures should not be viewed as a substitute for those determined in accordance with generally accepted accounting principles (“GAAP”). In addition, our definitions of these items may not be comparable to the definitions used by other companies.

Non-GAAP operating income and operating income per diluted share consist of our GAAP net income adjusted by the net realized gains (losses), net impairment losses on investments, change in net unrealized gains (losses) on equity securities and taxes related thereto. The adjustment for net unrealized losses on equity securities is only applicable for 2018 due to the adoption of the above mentioned accounting standard update. Net income and earnings per diluted share are the GAAP financial measures that are most directly comparable to operating income and operating income per diluted share, respectively. A reconciliation of the GAAP financial measures to these non-GAAP measures is included in the 2018 financial highlights below.

About Safety:  Safety Insurance Group, Inc., based in Boston, MA, is the parent of Safety Insurance Company, Safety Indemnity Insurance Company, and Safety Property and Casualty Insurance Company.  Operating exclusively in Massachusetts, New Hampshire, and Maine, Safety is a leading writer of property and casualty insurance products, including private passenger automobile, commercial automobile, homeowners, dwelling fire, umbrella and business owner policies. 

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 filed its December 31,  2017 Form 10-K with the SEC on February 28,  2018 and urges shareholders to refer to this document for more complete information concerning Safety’s financial results.

Contacts:

Safety Insurance Group, Inc.

Office of Investor Relations

877-951-2522

InvestorRelations@SafetyInsurance.com 

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 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 Commissioner of Insurance 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 Form 10-K for the year ended December 31,  2017 filed with the SEC on February 28,  2018.

We are not under any obligation (and expressly disclaim any such obligation) to update or alter our forward-looking statements, whether as a result of new information, future events, or otherwise.  You should carefully consider the possibility that actual results may differ materially from our forward-looking statements.

Safety Insurance Group, Inc. and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands, except share data)

	June 30,		December 31,
	2018		2017
	(Unaudited)
Assets
Investments:
Fixed maturities, available for sale, at fair value (amortized cost: $1,153,613 and $1,156,697)	$	1,145,335	$	1,172,026
Equity securities, at fair value (cost: $119,571 and $90,481)		134,764		111,867
Other invested assets		23,074		23,162
Total investments		1,303,173		1,307,055
Cash and cash equivalents		18,722		41,708
Accounts receivable, net of allowance for doubtful accounts		209,468		190,649
Receivable for securities sold		2,673		1,380
Accrued investment income		8,847		8,876
Taxes recoverable		2,735		908
Receivable from reinsurers related to paid loss and loss adjustment expenses		24,073		24,776
Receivable from reinsurers related to unpaid loss and loss adjustment expenses		96,577		83,085
Ceded unearned premiums		36,950		32,175
Deferred policy acquisition costs		75,223		72,202
Deferred income taxes		2,307		—
Equity and deposits in pools		29,699		28,246
Other assets		19,879		16,219
Total assets	$	1,830,326	$	1,807,279
Liabilities
Loss and loss adjustment expense reserves	$	579,791	$	574,054
Unearned premium reserves		452,402		428,257
Accounts payable and accrued liabilities		53,269		60,701
Payable for securities purchased		7,226		4,188
Payable to reinsurers		22,361		13,801
Deferred income taxes		—		2,917
Other liabilities		18,809		22,345
Total liabilities		1,133,858		1,106,263
Shareholders’ equity
Common stock:  $0.01 par value; 30,000,000 shares authorized; 17,566,461 and 17,499,544 shares issued		176		175
Additional paid-in capital		192,495		189,714
Accumulated other comprehensive (loss) income, net of taxes		(6,540)		24,269
Retained earnings		594,172		570,693
Treasury stock, at cost: 2,279,570 shares		(83,835)		(83,835)
Total shareholders’ equity		696,468		701,016
Total liabilities and shareholders’ equity	$	1,830,326	$	1,807,279

Safety Insurance Group, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

(Dollars in thousands, except share and per share data)

	Three Months Ended  June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Net earned premiums	$	194,125	$	192,824	$	386,158	$	382,535
Net investment income		10,188		9,715		20,719		18,810
Earnings from partnership investments		487		769		5,351		882
Net realized gains on investments		1,589		567		2,895		2,109
Change in net unrealized gains on equity investments		(2,711)		—		(6,193)		—
Finance and other service income		4,292		4,374		8,759		8,683
Total revenue		207,970		208,249		417,689		413,019
Losses and loss adjustment expenses		113,227		117,049		250,871		245,479
Underwriting, operating and related expenses		61,573		60,979		122,429		120,649
Interest expense		23		23		45		45
Total expenses		174,823		178,051		373,345		366,173
Income before income taxes		33,147		30,198		44,344		46,846
Income tax expense		6,331		9,093		8,403		13,722
Net income	$	26,816	$	21,105	$	35,941	$	33,124
Earnings per weighted average common share:
Basic	$	1.77	$	1.40	$	2.37	$	2.19
Diluted	$	1.75	$	1.39	$	2.35	$	2.18
Cash dividends paid per common share	$	0.80	$	0.70	$	1.60	$	1.40
Number of shares used in computing earnings per share:
Basic		15,090,435		15,020,028		15,068,321		15,000,127
Diluted		15,213,414		15,114,284		15,202,338		15,105,554
Reconciliation of  Net Income to Non-GAAP  Operating Income
Net income	$	26,816	$	21,105	$	35,941	$	33,124
Exclusions from net income:
Net realized gains on investments		(1,589)		(567)		(2,895)		(2,109)
Change in net unrealized gains on equity investments		2,711		-		6,193		-
Income tax (expense) benefit		(236)		198		(693)		738
Non-GAAP operating income	$	27,702	$	20,736	$	38,546	$	31,753
Net income per diluted share	$	1.75	$	1.39	$	2.35	$	2.18
Exclusions from net income:
Net realized gains on investments		(0.10)		(0.04)		(0.19)		(0.14)
Change in net unrealized gains on equity investments		0.18		-		0.41		-
Income tax (expense) benefit		(0.02)		0.02		(0.05)		0.05
Non-GAAP operating income per diluted share	$	1.81	$	1.37	$	2.52	$	2.09

Safety Insurance Group, Inc. and Subsidiaries

Additional Premium Information

(Unaudited)

(Dollars in thousands)

	Three Months Ended  June 30,					Six Months Ended  June 30,
	2018		2017		2018		2017
Written Premiums
Direct	$	233,050	$	227,048	$	436,783	$	426,714
Assumed		8,297		8,443		16,245		17,035
Ceded		(25,832)		(21,675)		(47,500)		(39,063)
Net written premiums	$	215,515	$	213,816	$	405,528	$	404,686
Earned Premiums
Direct	$	208,297	$	203,785	$	412,116	$	403,039
Assumed		7,880		7,986		16,767		16,712
Ceded		(22,052)		(18,947)		(42,725)		(37,216)
Net earned premiums	$	194,125	$	192,824	$	386,158	$	382,535