Every insurer eventually hits an unexpected volley of insurance losses. For Safety Insurance Group (SAFT 3.94%) that event came last quarter in the form of snow -- lots and lots of snow.

The Massachusetts-based property and casualty insurer reported that record snowfalls (9 feet in some areas) produced significant catastrophe and non-catastrophe insurance claims. In the first quarter, the company reported a loss of $35.1 million, or $2.37 per fully diluted share.

Safety Insurance noted that it expected to incur losses of $111.7 million as a direct result of the snowfall, with $49.9 million in expected reinsurance recoveries. In the press release, the company pointed out that it was the first time that "a loss pierced our catastrophe reinsurance program."

Put it in perspective
Recent history shows that Safety Insurance experiences the greatest losses during the winter months in the first and fourth calendar quarters. The second and third quarters have generally been more favorable, as driving conditions are much better during the summer months than winter months. After all, Safety Insurance is predominately a car insurer, as other products made up only 25.8% of direct written premiums in 2014.

Historically, Safety Insurance has underwritten such that its losses and expenses have tallied to less than premiums earned. When you chart the first quarter results against prior quarters, you can see that the snowfall this quarter was a particularly large event. Losses consumed $1.14 of every premium dollar earned. Its combined ratio clocked in at 142.6%, well above the year-ago reading of 99.1%.

What matters now is whether or not losses will create a hardened market in which insurers, left with less capacity after paying out losses, increase their premiums on new and existing policies when they are renewed.

Pricing and investment income
Safety reported that its commercial automobile and homeowners lines of business experienced increases in average written premium per exposure of 5.2% and 1.6%, respectively, compared to the year-ago period, following a long trend of increasing premiums per exposure. Written exposures increased by 1.7% and 4.6% in commercial automobile and homeowners lines, respectively.

Net investment income of $10.6 million was unchanged year over year, though Safety's annualized investment yields fell modestly from 3.5% to 3.4%. Average duration on its investment portfolio stands at 3.8 years, down from 4 years in the comparable period. The low duration of its investment portfolio situates it to comfortably match its assets with expected losses while enabling it to reinvest in higher-yielding securities should rates drift higher.

Although it may have been a "bad" quarter from the headline earnings, record snowfalls in Massachusetts were something that no one could have foreseen. Over its history, Safety Insurance has done quite well to adequately price insurance and set reserves to cover future losses, as evidenced by its low combined ratios and favorable prior-year developments.