A relatively wet but warm fourth quarter in the Northeast United States helped Safety Insurance Group (SAFT -0.85%) earn $18.3 million in the fourth quarter of 2018, a 62% improvement over the year-ago period.

On a basis that excludes the ups and downs of Safety's investment portfolio, it earned about $28.1 million, a 167% increase over the fourth quarter of 2017. Here's what shareholders should know about Safety's fourth-quarter results.

Car key sitting on top of a car's center console.

Image source: Getty Images.

Safety Insurance Group's Fourth Quarter: By the Numbers


Q4 2018

Q4 2017

Year-Over-Year Change

Combined ratio



(11.1 ppt)

Net income

$18.3 million

$11.3 million


Non-GAAP operating income per share




Diluted EPS




Book value per share




Data source: Safety Insurance Group, year-over-year calculations by author. PPT = percentage points. GAAP = generally accepted accounting principles. EPS = earnings per share.

What happened this quarter?

  • Losses were light. The fourth quarter of the year can be a costly one for this Massachusetts-based auto and home insurer, but this wasn't the case in 2018. The company reported a loss ratio (what it paid out or expects to pay out in the future as a percentage of premiums) of 59.4%, significantly better than a 68.6% loss ratio in the year-ago period.
  • Prior-year development helped. Safety Insurance regularly reports favorable prior-year development, which it recognizes upon revising down its estimates for losses that occurred in earlier accounting periods. In the fourth quarter, Safety had $17.1 million of favorable prior-year development on a pre-tax basis, better than the $10.6 million of favorable development in the year-ago period, which partially explains the improvement in its loss ratio.
  • Investment losses took a bite. Prior to 2018, gains or losses on an insurers' investment portfolio only affected the income statement when the gains or losses were realized. Now, gains or losses, realized or unrealized, flow through the income statement in real time. This quarter, Safety had about $12.6 million in unrealized losses stemming from its $148 million stock portfolio. This largely explains the difference between GAAP and non-GAAP earnings-per-share figures this quarter.

Looking ahead

Safety Insurance Group is more auto insurer than anything else, as it generates less than 30% of its premiums from other lines of insurance like homeowners and umbrella and business policies. That said, almost all of its insurance lines share one risk in common: the weather.

Historically, the first quarter of the year can be a trouble spot for Safety, as low temperatures, snow, and ice destroy personal and business property and make for treacherous driving conditions. Nearly two-thirds of the way into the first quarter, weather conditions in its home market of Massachusetts have been favorable so far.

Boston experienced a "snow drought" for much of January. Winter storms headed toward Massachusetts this week will cover the state in snow, but even the hardest-hit areas will see about 6" of snow, which is just another February day for a state that's used to the cold. With any luck, Safety Insurance may escape the first quarter of the year without any particularly large losses.

Underwriting has never been a problem at Safety Insurance, which, more often than not, posts an underwriting profit in any given year. Rather, the biggest challenge is growing its profitable book of business. In the fourth quarter, net earned premiums increased just 1% year over year. Given that the company regularly receives approval to increase rates on auto and homeowners policies, the pedestrian increase suggests Safety is slowly losing customers -- albeit very slowly.

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