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

May 6, 2020

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))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.01 per share	SAFT	The Nasdaq Stock Market, LLC

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 May 6, 2020, Safety Insurance Group, Inc. (the “Registrant”) announced its first quarter 2020 results. The Registrant’s press release dated May 6, 2020 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 May 6, 2020

104The cover page from this Current Report on form 8-K, formatted in Inline XBRL

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.

	Safety Insurance Group, Inc. (Registrant)
Date: May 6, 2020	By:	/s/ CHRISTOPHER T. WHITFORD
		Christopher T. Whitford
		V.P., Chief Financial Officer and Secretary

EX-99.1

Exhibit 99.1

SAFETY ANNOUNCES FIRST QUARTER 2020 RESULTS AND DECLARES SECOND QUARTER 2020 DIVIDEND

Boston, Massachusetts, May 6, 2020.  Safety Insurance Group, Inc. (NASDAQ:SAFT) today reported first quarter 2020 results.

During this challenging time, Safety Insurance Group, Inc. (“the Company”) has taken many actions that address the health and well-being of our employees while still serving the needs of our agents and insureds. Beginning in March 2020, the global pandemic associated with the novel coronavirus COVID-19 (“COVID-19”) and related economic conditions caused significant economic effects including temporary closures of many businesses and reduced consumer activity due to shelter-in-place, stay-at-home and other governmental actions. This, in turn, caused significant market volatility and as a result the Company experienced investment losses driven by the impact of changes in fair value on the Company's equity investments. 

The COVID-19 pandemic has led to a significant amount of insurance related regulatory activity. At the state level, legislative efforts have largely focused on bills related to coverage of business interruption claims and policyholder premium relief. Currently, legislation is being pursued in more than a half a dozen states, including Massachusetts, which would mandate that insurers provide business interruption coverage to small businesses for COVID-19, even if this coverage would not otherwise be applicable based on policy language. 

COVID-19 did not have a material effect on our premium revenues for the first quarter of 2020. Early in the second quarter of 2020, the Company announced the Safety Personal Auto Relief Credit, a 15% policyholder credit applied to each personal auto policy for the months of April and May. Although the pandemic has resulted in fewer cars on the road, there was not a material impact to loss and loss adjustment expenses incurred during the three months ended March 31, 2020.

Net loss for the quarter ended March 31, 2020 was $2.0 million, or $0.13 per diluted share, compared to net income of $29.9 million, or $1.95 per diluted share, for the comparable 2019 period. The decrease is driven by the change in unrealized gains and losses on equity investments.  For the quarter ended March 31, 2020, a decrease of $30.0 million for the change in unrealized gains on equity investments was recognized within (loss) income before income taxes, compared to an increase of $11.8 million recognized in the comparable 2019 period. Non-generally accepted accounting principles (“non-GAAP”) operating income, as defined below, for the quarter ended March 31,  2020 was $1.57 per diluted share, compared to $1.36 per diluted share, for the comparable 2019 period.

Safety’s book value per share decreased to $49.78 at March 31, 2020 from $52.55 at December 31, 2019,  primarily due to changes in accumulated other comprehensive income, dividends paid to shareholders and the purchase of treasury shares during the quarter.  During the three months ended March 31, 2020, the Company purchased 143,292 shares on the open market under the previously disclosed program at a cost of $10.4 million, or an average cost of $72.93 per share.  Safety paid $0.90 per share in dividends to investors during the quarter ended March 31, 2020 compared to $0.80 per share in dividends to investors during the quarter ended March 31, 2019. Safety paid $3.40 per share in dividends to investors during the year ended December 31, 2019. 

Direct written premiums for the quarter ended March 31,  2020 decreased  by $6.1 million, or 3.0%, to $197.3 million from $203.4 million for the comparable 2019 period. The decrease is primarily in our commercial automobile line of business and is a result of changes made by Commonwealth Automobile Reinsurers (“CAR”) to eligibility requirements which impacted the number of policies that we handle as a Servicing Carrier to the ceded pool. This resulted in a commensurate decrease in ceded written premium to and assumed from these programs. Net written premiums for the quarter ended March 31, 2020 decreased by $1.0 million, or 0.5%, to $188.9 million from $189.9 million for the comparable 2019 period. Net earned premiums for the quarter ended March 31, 2020 increased by $3.3 million, or 1.8%, to $197.8 million from $194.5 million for the comparable 2019 period.  

For the quarter ended March 31,  2020, loss and loss adjustment expenses incurred decreased by $5.3 million, or  4.2%, to $120.7 million from $126.0 million for the comparable 2019 period. The decrease is primarily due to favorable winter weather related activity in 2020. Loss, expense, and combined ratios for the quarter ended March 31,  2020 were 61.0%,  31.9%, and 92.9%, respectively, compared to 64.8%,  31.1%, and 95.9%, respectively, for the comparable 2019 period. Total prior year favorable development included in the pre-tax results for the quarter ended March 31,  2020 was $9.6 million compared to $12.0 million for the comparable 2019 period. 

Net investment income for the quarter ended March 31, 2020 decreased by $1.1 million, or 8.9%, to $10.7 million from $11.8 million for the comparable 2019 period.  The decrease is a result of fixed maturity

amortization resulting from prepayment activity on certain residential mortgage-backed securities. Net effective annualized yield on the investment portfolio for the quarter ended March 31, 2020 was 3.1% compared to 3.5% for the comparable 2019 period. Our duration was 3.2 years at March 31, 2020 compared to 3.3 years at December 31, 2019. 

On March 17, 2020, the Company borrowed $30.0 million from the FHLB-Boston out of an abundance of caution due to market uncertainty caused by COVID-19. The cash is still held at March 31, 2020 and is presented as an offset to the Other Liabilities financial statement line-item, which represents outstanding claim checks.

Today, our Board of Directors approved and declared a $0.90 per share quarterly cash dividend on its issued and outstanding common stock, payable on June 15, 2020 to shareholders of record at the close of business on June 1, 2020.

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 non-GAAP operating income per diluted share consist of our GAAP net income adjusted by the net realized losses on investments,  net impairment losses on investments, changes in net unrealized gains on equity investments, credit loss expense and taxes related thereto. For the quarter ended March 31, 2020, a decrease of $30.0 million for the change in unrealized gains on equity investments was recognized within (loss) income before income taxes, compared to an increase of $11.8 million recognized in the comparable 2019  period. Net (loss) income and (loss) earnings per diluted share are the GAAP financial measures that are most directly comparable to non-GAAP operating income and non-GAAP operating income per diluted share, respectively. A reconciliation of the GAAP financial measures to these non-GAAP measures is included in the 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,  2019 Form 10-K with the SEC on February 28,  2020 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;

· 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;

· The effects of emerging claim and coverage issues on the Company’s business are uncertain, and court decisions or legislative or regulatory changes that take place after the Company issues its policies, including those taken in response to COVID-19 (such as requiring insurers to cover business interruption claims irrespective of terms or other conditions included in the policies that would otherwise preclude coverage), can result in an unexpected increase in the number of claims and have a material adverse impact on the Company's results of operations;

· The impact of COVID-19 and related risks, including on the Company's employees, agents or other key partners, could materially affect the Company's results of operations, financial position and/or liquidity; 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,  2019 filed with the SEC on February 28,  2020.

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)

	March 31,		December 31,
	2020		2019
	(Unaudited)
Assets
Investments:
Fixed maturities, available for sale, at fair value (amortized cost: $1,159,859 and $1,192,357, allowance for expected credit losses of $2,510 at March 31, 2020)	$	1,165,455	$	1,228,040
Equity securities, at fair value (cost: $153,359 and $151,121)		149,888		177,637
Other invested assets		41,881		37,278
Total investments		1,357,224		1,442,955
Cash and cash equivalents		41,567		44,407
Accounts receivable, net of allowance for credit losses of $334 at March 31, 2020		189,671		193,369
Receivable for securities sold		1,067		1,784
Accrued investment income		9,152		8,404
Taxes recoverable		—		1,003
Receivable from reinsurers related to paid loss and loss adjustment expenses		14,039		11,319
Receivable from reinsurers related to unpaid loss and loss adjustment expenses		121,337		122,372
Ceded unearned premiums		30,191		35,182
Deferred policy acquisition costs		72,132		74,287
Deferred income taxes		6,001		—
Equity and deposits in pools		30,004		29,791
Operating lease right-of-use-assets		34,256		33,998
Other assets		24,078		23,798
Total assets	$	1,930,719	$	2,022,669
Liabilities
Loss and loss adjustment expense reserves	$	608,693	$	610,566
Unearned premium reserves		428,291		442,219
Accounts payable and accrued liabilities		55,911		75,016
Payable for securities purchased		4,343		6,377
Payable to reinsurers		2,446		12,911
Deferred income taxes		—		5,717
Taxes payable		543		—
Debt		30,000		—
Operating lease liabilities		34,256		33,998
Other liabilities		4,127		27,459
Total liabilities		1,168,610		1,214,263
Shareholders’ equity
Common stock:  $0.01 par value; 30,000,000 shares authorized; 17,732,359 and 17,662,779 shares issued		177		177
Additional paid-in capital		204,064		202,321
Accumulated other comprehensive income, net of taxes		6,404		28,190
Retained earnings		645,691		661,553
Treasury stock, at cost: 2,422,862 and 2,279,570 shares		(94,227)		(83,835)
Total shareholders’ equity		762,109		808,406
Total liabilities and shareholders’ equity	$	1,930,719	$	2,022,669

Safety Insurance Group, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

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

	Three Months Ended March 31,
	2020		2019
Net earned premiums	$	197,895	$	194,491
Net investment income		10,710		11,751
Earnings from partnership investments		1,339		835
Net realized losses on investments		(631)		(164)
Change in net unrealized gains on equity investments		(29,988)		11,801
Net impairment losses on investments (a)		—		(220)
Credit loss expense		(2,510)		—
Finance and other service income		4,229		4,085
Total revenue		181,044		222,579
Losses and loss adjustment expenses		120,746		126,027
Underwriting, operating and related expenses		63,082		60,434
Interest expense		47		22
Total expenses		183,875		186,483
(Loss) income before income taxes		(2,831)		36,096
Income tax (benefit) expense		(841)		6,150
Net (loss) income	$	(1,990)	$	29,946
(Loss) earnings per weighted average common share:
Basic	$	(0.13)	$	1.97
Diluted	$	(0.13)	$	1.95
Cash dividends paid per common share	$	0.90	$	0.80
Number of shares used in computing earnings per share:
Basic		15,230,784		15,140,804
Diluted		15,347,083		15,305,785
(a) No portion of the other-than-temporary impairments recognized in the period indicated were included in Other Comprehensive Income for the period ended March 31, 2019.
Reconciliation of  Net (Loss) Income to Non-GAAP  Operating Income
Net (loss) income	$	(1,990)	$	29,946
Exclusions from net (loss) income:
Net realized losses on investments		631		164
Change in net unrealized gains on equity investments		29,988		(11,801)
Net impairment losses on investments		-		220
Credit loss expense		2,510		-
Income tax (benefit) expense on exclusions from net income		(6,957)		2,398
Non-GAAP operating income	$	24,182	$	20,927
Net (loss) income per diluted share	$	(0.13)	$	1.95
Exclusions from net (loss) income:
Net realized losses on investments		0.04		0.01
Change in net unrealized gains on equity investments		1.95		(0.77)
Net impairment losses on investments		-		0.01
Credit loss expense		0.16		-
Income tax (benefit) expense on exclusions from net income		(0.45)		0.16
Non-GAAP operating income per diluted share	$	1.57	$	1.36

Safety Insurance Group, Inc. and Subsidiaries

Additional Premium Information

(Unaudited)

(Dollars in thousands)

	Three Months Ended March 31,
	2020		2019
Written Premiums
Direct	$	197,346	$	203,387
Assumed		7,978		8,245
Ceded		(16,366)		(21,694)
Net written premiums	$	188,958	$	189,938
Earned Premiums
Direct	$	210,151	$	207,308
Assumed		9,102		9,315
Ceded		(21,358)		(22,132)
Net earned premiums	$	197,895	$	194,491

XML

Document and Entity Information	May 06, 2020
Document and Entity Information [Abstract]
Document Type	8-K
Document Period End Date	May 06, 2020
Entity File Number	000-50070
Entity Registrant Name	SAFETY INSURANCE GROUP, INC.
Entity Incorporation, State or Country Code	DE
Entity Tax Identificatoin Number	13-4181699
Entity Address, Address Line One	20 Custom House Street
Entity Address, State or Province	MA
Entity Address, City or Town	Boston
Entity Address, Postal Zip Code	02110
City Area Code	(617)
Local Phone Number	951-0600
Written Communications	false
Soliciting Material	false
Pre-commencement Tender Offer	false
Pre-commencement Issuer Tender Offer	false
Title of 12(b) Security	Common Stock, par value $0.01 per share
Trading Symbol	SAFT
Security Exchange Name	NASDAQ
Entity Emerging Growth Company	false
Entity Central Index Key	0001172052
Amendment Flag	false