Safety Insurance Group (NASDAQ:SAFT) reported third-quarter earnings of $18 million, down roughly 3% from $18.6 million last year. The decrease was largely driven by a decrease in realized gains on its investment portfolio, partially offset by improved underwriting results.

Safety Insurance Group's Q3: By the Numbers


Q3 2017

Q3 2016

Year-Over-Year Change

Combined ratio



(60) bps

Net income

$18 million

$18.6 million


Diluted EPS




Book value per share




Data source: Safety Insurance

What happened this quarter?

  • Insurance losses were impressively low this quarter, as Safety Insurance Group reported a loss ratio (losses on policies divided by premiums earned) of 63.3%. That compares favorably to the 65.5% loss ratio a year ago. Expenses were slightly higher, but Safety reported a combined ratio (losses plus expenses as a percentage of premiums earned) of 95.5%, better than the 96.1% combined ratio last year.
  • The decline in net income doesn't tell the full story, as insurance earnings can be driven by the realization of gains or losses in the investment portfolio, which flow through net income only when an insurance company realizes the gain or loss by selling an asset. It's notable that non-recurring investment gains declined by approximately $2.4 million on a pre-tax basis, compared to the year-ago period.
  • Rising rates, a key part of the thesis for investing in property and casualty insurers like Safety Insurance, haven't had a marked impact on its recurring income from its bond portfolio. Net investment income (recurring investment income) grew to $9.5 million from $9 million last year, helped by a modest increase in effective yields earned on the portfolio (3% this quarter vs. 2.9% a year ago). 
  • Direct written premiums increased just 1.3% to $215.9 million during the quarter. On a net written premium basis, premiums were roughly flat, coming in at $204.5 million for the quarter. 
Photo of U.S. currency stuffed into a jar.

Image source: Getty Images.

Looking ahead

Safety's second and third quarters are ordinarily its best from an underwriting perspective, as the company experiences seasonally lower losses. This quarter was no exception. Safety Insurance now looks ahead to the seasonally difficult winter season in which losses are typically elevated, due to icy road conditions and winter storm damage to homes in its core New England markets.

A capable risk manager, Safety's underwriting record is worth of envy. It has produced an underwriting profit in each of the last nine quarters and has a long record of pricing risk responsibly. That said, investors will want to see that Safety Insurance can increase its premiums written by writing more policies, rather than price increases on existing customers.

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