Safety Releases Q4 2003 Results

Boston-based Safety Insurance Group Inc. reported fourth quarter 2003 results, with net income available to common shareholders for the fourth quarter of 2003 at $5.7 million, or $0.37 per diluted share, compared to $1.1 million, or $0.12 per diluted share, for the comparable 2002 period.

Net income available to common shareholders for the year ended 2003 was $28.5 million, or $1.86 per diluted share, compared to $9.2 million, or $1.38 per diluted share, for the comparable 2002 period. Safety’s book value per share was $17.56 at Dec. 31, 2003 after paying $0.34 per share in dividends to investors, compared to $16.07 at Dec. 31, 2002 when no dividends were paid, based on 15,259,991 shares of common stock outstanding at the end of each period.

Direct written premiums for the fourth quarter of 2003 increased by $11.7 million, or 10.9 percent, to $118.7 million from $107.0 million for the comparable 2002 period. Direct written premiums for the year ended 2003 increased by $54.9 million, or 10.6 percent, to $571.5 million from $516.6 million for the comparable 2002 period. The 2003 increase occurred primarily in the personal automobile line which experienced a 6.9 percent increase in average written premium and a 2.8 percent increase in written exposures. In addition, Safety increased its commercial automobile line average rates by 7.1 percent effective Dec. 16, 2002 and had a 6.9 percent increase in written exposures, while increasing its homeowners line average rates by 9.3 percent effective Feb. 19, 2003 which was partly offset by a 2.4 percent decrease in written exposures.

Net written premiums for the fourth quarter of 2003 increased by $9.5 million, or 8.8 percent, to $116.9 million from $107.4 million for the comparable 2002 period. Net written premiums for the year ended 2003 increased by $49.4 million, or 9.5 percent, to $567.0 million from $517.6 million for the comparable 2002 period. This was primarily due to an increase in direct written premiums, partly offset by an increase in premiums ceded to Commonwealth Automobile Reinsurers (“CAR”).

Net earned premiums for the fourth quarter of 2003 increased by $13.6 million, or 10.8 percent, to $139.1 million from $125.5 million for the comparable 2002 period. Net earned premiums for the year ended 2003 increased by $50.9 million, or 10.4 percent, to $540.2 million from $489.3 million for the comparable 2002 period. This was primarily due to increased rates on personal automobile, commercial automobile and homeowners product lines.

Investment income for the fourth quarter of 2003 was consistent with the fourth quarter of 2002 at $6.4 million. Investment income for the years ended 2003 and 2002 remained constant at $26.1 million. Average cash and investment securities (at amortized cost) increased by $79.0 million or 14.1 percent to $638.9 million for the year ended 2003 from $559.9 million for the year ended 2002. Offsetting the effect of this increase was a decrease in net effective yield on the investment portfolio to 4.1 percent from 4.7 percent during the year ended 2003 due to declining interest rates, as well as a change in management’s investment strategy to shorten the portfolio duration, shift to higher rated securities, and increase tax-exempt holdings. The duration decreased to 4.2 years at Dec. 31, 2003 from 5.0 years at Dec. 31, 2002.

Net realized gains on investments for the fourth quarter of 2003 decreased to $0.2 million from $0.7 million for the comparable 2002 period. Net realized gains (losses) on investments for the year ended 2003 increased to a $10.1 million gain from a $(0.3) million loss for the comparable 2002 period. These increases were primarily due to the sale of certain securities related to our current investment strategy to shorten portfolio duration as protection against future increases in interest rates.

GAAP loss, expense and combined ratios for the fourth quarter of 2003 were 78.4 percent, 23.0 percent and 101.4 percent compared to 78.4 percent, 25.0 percent and 103.4 percent for the comparable 2002 period. GAAP loss, expense and combined ratios for the year ended 2003, were 77.9 percent, 24.2 percent and 102.1 percent compared to 76.7 percent, 26.3 percent and 103.0 percent for the comparable 2002 period.

The fourth quarter 2003 combined ratio decreased by 2.0 percent from the comparable 2002 period due to expense reductions. The year ended 2003 combined ratio decreased by 0.9 percent from the comparable 2002 period, primarily as a result of a 2.1 percent decrease in the expense ratio due to an increase in earned premiums coupled with ongoing cost control programs, employee productivity improvements through the use of technology and reduced expenses assumed from CAR.

Partly offsetting the decrease was a 1.2 percent increase in the loss ratio due to the impact of increased claim frequency and severity from unusually harsh winter conditions in Massachusetts during the first quarter of 2003 on Safety’s homeowners line of business.