On Feb. 26, Massachussetts-based auto insurer Safety Insurance Group (NASDAQ:SAFT) released fourth-quarter earnings for the period ended Dec. 31.

  • Net income fell 15% to $22.9 million from $27.0 million in Q4 2005.
  • For the year, book value per share showed robust 25% growth to $30.84 from $24.57.
  • The quarter's combined ratio increased 560 basis points over the prior-year period to 87.8%. About 450 basis points of the increase was due to an increase in the expense ratio -- the company cited higher agent's commissions as the culprit.
  • Auto insurers have seen premium growth come under pricing pressure, although combined ratios have stayed low. Shares of competitors Progressive (NYSE:PGR), Mercury General (NYSE:MCY), and Allstate (NYSE:ALL) have largely languished over the past year.

(Figures in thousands, except per-share data)

Income Statement Highlights

Q4 2006

Q4 2005

% Change

Premiums Earned

$154,146

$152,380

1.2%

Investment Income

$10,737

$8,522

26.0%

Net Income

$22,896

$26,959

(15.1%)

EPS

$1.42

$1.69

(16.0%)



Get back to basics with a look at an insurer's income statement.

Ratio Checkup

Q4 2006

Q4 2005

*Change

Loss Ratio

61.4%

60.3%

1.10

Expense Ratio

26.4%

21.9%

4.50

Combined Ratio

87.8%

82.2%

5.60

Net Investment Yield

4.4%

3.8%

0.60

*Expressed in percentage points.

What do these ratios mean?

Balance Sheet Highlights

Assets

Q4 2006

Q4 2005

% Change

Investments

$940,605

$714,543

31.6%

Cash and Equivalent

$26,283

$163,027

(83.9%)



Liabilities

Loss Reserve

$449,444

$450,716

(0.3%)

Unearned Premiums

$333,404

$341,562

(2.4%)



Learn your way around an insurer's balance sheet.

Related Foolishness:

Safety Insurance is a Stock Advisor recommendation. Mercury General is a Motley Fool Income Investor recommendation. Try any one of our investing services free for 30 days.

Fool by Numbers is designed to give you the raw earnings information in a timely fashion, putting all the numbers you need in one easy-to-read place. But at The Motley Fool, we believe numbers tell only part of the story, so check Fool.com for more of our in-depth discussion of what the numbers mean.

Fool contributor Emil Lee is an analyst and a disciple of value investing. He doesn't own shares in any of the companies mentioned above. Emil appreciates your comments, concerns, and complaints. The Motley Fool has a disclosure policy.

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