Dean Morel

Safety Insurance Group: Reduces Risk with Attractive Probable Returns

The following comment was posted on my blog and it covers a couple topics I failed to mention.
"MA auto insurance reform.

Compare state specialists (like SAFT) to past state specialists in the auto insurance reform markets of NJ (2003) and SC (1999). State specialists tend to get hammered in changing environments, and usually there’s an unprofitable rate war for several years as the market sorts itself out. SAFT is 100% MA and 80% PPA.

Your projected returns might be optimistic.

SAFT has done better than other insurers because of their investment portfolio (which you haven’t mentioned), and frankly, a PPA monoline typically has less reason to get “inventive” with their investments. No “value investing” writeup of an insurer is complete without a treatment of their investing philosophy."

Here is my reply.
"Thanks for your insightful comments. I agree with all of the SAFT comments. An 80%+ return over three years is clearly optimistic, while an 8% return in a year seems conservative to me. I am not a value investor and this is not a value investing write-up. It was a quick write-up; however, you are correct that I neglected to mention several key points. Thanks for bringing them up.
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.
Safety’s investment yield from Q4 2008 to Q1 2005; 4.3%, 4.4%, 4.3%, 4.4%, 4.4%, 4.4%, 4.5%, 4.5%, 4.4%, 4.4%, 4.3%, 4.2%, 3.8%, 3.7%, 3.7%, 3.7% (from my spreadsheet, figures not double checked)"