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Safety Insurance Group Inc. (SAFT) the second largest private passenger insurer in Massachusetts, reported Q4 2009 earnings in-line with analysts expectations of $0.93 (see conference call transcript here).

The results are better than a quick glance conveys as the headline numbers appear disappointing due to the one off settlement with the Massachusetts Attorney General’s office. Price to book is still under one, but has narrowed to 0.94. Earnings improvement YoY continues to suggest stabilization of business, though analysts are still predicting YoY earnings deterioration. 1.3M shares bought back at around the lows of the year.

However, the results were mixed with a few negatives.

  • Net income for the quarter ended December 31, 2009 was $10.3 million, or $0.68 per diluted. Adjusted for the one off settlement gives $0.93.
  • Book value per share increased to $41.20 at December 31, 2009 compared to $37.17 at December 31, 2008. This is down $0.01 from Q3, but considering the $0.40 dividend and $0.25 settlement, that's a good result. The discount of price to book has narrowed since last quarter. P/B was 0.85 and is now 0.94.
  • The settlement with Massachusetts Attorney General’s office was recorded as an increase to underwriting expenses in 2009. The after tax impact on net income was $3.8 million, or $0.25 per diluted share for Q4, and $4.9 million, or $0.32 for the year.
  • Direct written premiums increased by $7.5 million, or 6.6%, to $121.5 million from $114 million.
  • Net earned premiums decreased by $5.3 million, or 3.9%, to $132.3 million from $137.6 million.
  • Net investment income was $11.1 million compared to $11.3 million.
  • Continue to hold no subprime mortgage debt securities. All mortgage-backed securities are either U.S. Government or Agency guaranteed or are rated Aaa.
  • Share buyback: Purchased 1,332,535 shares on the open market in 2009 at a cost of $42.2 million. Average cost of $31.69 was fantastic buying at around the year's lows.
  • Cash and cash equivalents of $74.5 million, no outstanding debt.
  • Loss, expense and combined ratios were 64.1%, 36.6% and 100.7% compared to 69.2%, 29.7% and 98.9% for the comparable 2008 period. The loss ratio decreased primarily as a result of the absence of any catastrophic losses during the quarter compared to $4.0 million in losses related to the December 2008 New England ice storm. The expense ratio increased as a result of the expenses related to the settlement with the Massachusetts Attorney General’s office. Adjusted Q4 ratios are 64.1%, 33.8% and 97.9%. To adjust the expense ratio for the AG's settlement I calculated the expense ratio by dividing underwriting expenses less the settlement by net premiums earned, i.e. (48.4M-3.8M)/132.3M

Two Charts to Summarize

SAFT historical book value SAFT EPS History

Disclosure: Author holds a long position in SAFT

Source: Safety Insurance Group's Q4 Results: Positives and Negatives