It's always possible to run into a head-on collision in Massachusetts auto insurance, because of the political pandering that keeps premiums "reasonable." Safety Insurance Group (NASDAQ:SAFT), the state's second-largest insurer, managed to avoid any wreckage from the steep, mandated rate cuts imposed following last year's election. In fact, it actually improved its financial position.

Direct written premiums rose 2% in the quarter to $181.5 million, although profits dipped 20% to $24.6 million, or $1.53 per share. While Safety Insurance benefited from a better-than-5% increase in homeowner's policy premiums, the surprising number for me was the 0.7% increase in auto insurance premiums, particularly since the state had mandated a nearly 12% rate cut. Last year, with a 9% mandated cut, the insurer's premiums declined some 7% from the year before.

Over the past 15 years, Safety Insurance has actually done a pretty good job of holding the line on besting the state's mandated cuts. It's able to achieve that because it aggressively adheres to a policy of "rate pursuit," closely monitoring the classification of drivers and vehicles. By assigning the proper amount of risk to each insured driver, it's only endured one time in that decade-and-a-half period in which its premiums declined more than the mandated amount.

After last quarter's numbers were published, the impact of the mandates took a number of analysts by surprise. Faced with even steeper cuts this year, the Motley Fool Stock Advisor recommendation's outlook created considerable uncertainty among investors. The reduced profits Safety Insurance posted were better than anticipated, but then again, the cuts they endured from last year's numbers were also expected.

An increase in its loss ratio due to high claims in auto insurance, decreases in favorable loss developments in homeowners insurance, and a drop in its expense ratio still weren't enough to lower Safety Insurance's important combined ratio year over year. At 86.8%, however, it was down 100 basis points from the previous quarter. The combined ratio measures the percentage of premiums an insurer must pay out in claims and expenses. If it's above 100%, it means the insurer is paying out more in claims than it's taking in via premiums.

The closed Massachusetts insurance market makes it unlikely that new rivals will move into the state. Commerce Group (NYSE:CGI), the state's largest insurer, recently reported improved earnings, but it also has twice the market share of Safety Insurance.

While Safety Insurance has responded well today on the news, it's still trading at just six times trailing earnings, in an industry with multiples a couple of notches higher. Both Commerce and Allstate (NYSE:ALL) trade higher. An increased dividend, a 4% increase in the company's book value, and a proven ability to control costs in the face of steep, mandated cuts have made Safety Insurance a formidably Foolish investment. There's still safety to be found in Safety's numbers.

Safety Insurance is a recommendation of Tom and David Gardner's flagship newsletter service, which is beating the market by 40 percentage points. Discover all of their market-beating picks with a free 30-day trial subscription.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.