Our Competitive Strengths
We Have Strong Relationships with Independent Agents. In 2017, Independent2022, independent agents accounted for approximately 61.6%63.8% of the Massachusetts automobilepersonal lines insurance market measured by direct written premiums as
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compared to approximately 31.3%37.0% nationwide, based on data made available by Independent Insurance Agents and Brokers of America, Inc. and Commonwealth Automobile Reinsurers.CAR. For that reason, our strategy is centered around, and we sell exclusively through, a network of independent agents, who numbered 892 in 1,107 locations throughout Massachusetts, New Hampshire and Maine during 2017.agents. In order to support our independent agents and enhance our relationships with them, we:
| provide our agents with a portfolio of property and casualty insurance products at competitive prices to help them effectively address the insurance needs of their clients; |
| provide our agents with a variety of technological resources which enable us to deliver superior service and support to them; and |
| offer our agents competitive commission schedules and profit sharing programs. |
Through these measures, we strive to become the preferred provider of the independent agents in our agency network and capture a growing share of the total insurance business written by these agents in Massachusetts, New Hampshire and Maine. We must compete with other insurance carriers for the business of independent agents.
We Have a History of Profitable Operations.In 3641 out of 3742 years since our inception in 1979, we have been profitable. The lone year in which we did not have profits was 2015 when we were impacted by claims related to the highest recorded snowfall totals in Massachusetts history. We have achieved our profitability, among other things, by:
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| maintaining a combined ratio that is typically below industry averages (refer to Insurance Ratios under Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations for a discussion on insurance ratios); |
| taking advantage of the institutional knowledge our management has amassed during its long tenure in the industry; |
| introducing new lines and forms of insurance products; |
| investing in technology to |
| maintaining a high-quality investment portfolio. |
We Have DevelopedContinue to Develop and Deploy Advanced Technology and Services for Our Business. We have dedicated significant human and financial resources to the development and deployments of advanced information systems. Oursystems and technologies, customer and agent facing websites, mobile applications, and customer engagement tools including online chat and text. Over the last several years we have modernized all of our core systems along with many of our surround systems and technology efforts have benefitedplatforms in an effort to increase efficiencies within the organization and provide a better user experience for our employees, agents, and customers. These modern systems and platforms position us in two distinct ways. First, weto continue to develop technology that empowerstake advantage of the latest in InsureTech offerings, Software as a Service (SaaS) products and cloud-based technologies to improve the customer experience, engage with customers on their terms, and assist with customer retention all while improving operational efficiencies and reducing operational costs. We also continue to expand our independent agent customers by making it easier for themusage of Robotics Process Automation throughout the organization to transact business with their clientsautomate manual processes, streamline the software testing process and with the Insurance Subsidiaries. In our largest business line, private passenger automobile insurance, our agents now submit approximately 99.0% of all applications for new policies or endorsements for existing policiesperform application performing testing to us electronically through our proprietary information portal, the Agents Virtual Community ("AVC"). Our agents also can submit commercial automobile and homeowners insurance policies electronically over the AVC. Second, our investment in technology has allowed us to re-engineer internal back office processes to provide more efficient service atinsure a lower cost.robust technical environment.
We Have an Experienced, Committed and Knowledgeable Management Team. Our senior managementteam has an average of over 29 years of experience with Safety and a demonstrated ability to operate successfully within the property and casualty market. Our senior management team along with our Board of Directors, collectively owns approximately 2.3% of the common stock of Safety Insurance Group, Inc. on a fully diluted basis.
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Our Strategy
To achieve our goal of increasing shareholder value, our strategy is to maintain and develop strong independent agent relationships by providing our agents with a full package of insurance products and information technology services. We believe this strategy will allow us to:
| further penetrate the Massachusetts, New Hampshire and Maine markets in all lines of business; |
| implement rates, forms and billing options that allow us to cross-sell private passenger automobile, homeowners, dwelling fire, and personal umbrella policies in the personal lines market and commercial automobile, business owner policies, commercial property package and commercial umbrella policies in the commercial lines market in order to capture a larger share of the total Massachusetts, New Hampshire and Maine property and casualty insurance business written by each of our independent agents; and |
| continue to expand our technology to enable independent agents to more easily serve their customers and conduct business with us, thereby strengthening their relationships with us. |
Property and Casualty Insurance Market
Introduction. We are licensed by the respective state insurance departments to transact property and casualty insurance in Massachusetts, New Hampshire, and Maine. All of our business is regulated by these departments, with the most extensive oversight from our domestic regulator, the Massachusetts Division of Insurance.Insurance (“Division”).
Historically, we have focused on underwriting private passenger automobile insurance, which is written through our subsidiary, Safety Insurance. In 1989, we formed Safety Indemnity to offer commercial automobile insurance at preferred rates. Since 1997, we have expanded the breadth of our product line in order for agents to address a greater portion of their clients' insurance needs by selling multiple products. Homeowners, business owners’ policies,owner, personal umbrella, dwelling fire and commercial umbrella insurance policies are written by Safety Insurance at standard rates and written by Safety Indemnity at preferred rates. In December 2006, we formed Safety P&C to offer homeowners and commercial automobile insuranceinsurance. In November 2020, we formed Safety Northeast to offer at ultra preferred rates.rates, which became licensed to write homeowners insurance products in Massachusetts.
The table below shows our premiums in each of these product lines for the periods indicated and the portions of our total premiums each product line represented.
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| Years Ended December 31, | | |||||||||||||||
Direct Written Premiums | 2022 | | | 2021 | | | 2020 | | |||||||||
Private passenger automobile | $ | 427,665 | | 52.0 | % | | $ | 429,819 | | 53.6 | % | | $ | 438,824 | | 54.9 | % |
Commercial automobile | | 143,571 | | 17.4 | | | | 129,832 | | 16.2 | | | | 118,773 | | 14.9 | |
Homeowners | | 208,577 | | 25.3 | | | | 199,886 | | 24.9 | | | | 199,482 | | 25.0 | |
Business owners | | 24,200 | | 2.9 | | | | 23,334 | | 2.9 | | | | 22,317 | | 2.8 | |
Personal umbrella | | 8,441 | | 1.0 | | | | 8,417 | | 1.1 | | | | 8,087 | | 1.0 | |
Dwelling fire | | 9,667 | | 1.2 | | | | 9,698 | | 1.2 | | | | 10,148 | | 1.3 | |
Commercial umbrella | | 1,197 | | 0.2 | | | | 1,153 | | 0.1 | | | | 1,081 | | 0.1 | |
Total | $ | 823,318 | | 100.0 | % | | $ | 802,139 | | 100.0 | % | | $ | 798,712 | | 100.0 | % |
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| Years Ended December 31, |
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Direct Written Premiums | 2017 |
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| 2016 |
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| 2015 |
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Private passenger automobile | $ | 468,908 |
| 56.7 | % |
| $ | 467,845 |
| 57.7 | % |
| $ | 468,187 |
| 59.6 | % |
Commercial automobile |
| 129,529 |
| 15.7 |
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| 120,641 |
| 14.9 |
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| 108,013 |
| 13.8 |
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Homeowners |
| 187,623 |
| 22.7 |
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| 182,128 |
| 22.4 |
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| 170,410 |
| 21.7 |
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Business owners |
| 22,734 |
| 2.7 |
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| 22,933 |
| 2.8 |
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| 22,223 |
| 2.8 |
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Personal umbrella |
| 7,870 |
| 0.9 |
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| 7,693 |
| 1.0 |
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| 6,925 |
| 0.9 |
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Dwelling fire |
| 9,603 |
| 1.2 |
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| 9,256 |
| 1.1 |
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| 8,920 |
| 1.1 |
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Commercial umbrella |
| 1,049 |
| 0.1 |
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| 1,063 |
| 0.1 |
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| 1,052 |
| 0.1 |
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Total | $ | 827,316 |
| 100.0 | % |
| $ | 811,559 |
| 100.0 | % |
| $ | 785,730 |
| 100.0 | % |
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Our product lines are as follows:
Private Passenger Automobile (56.7%(52.0% of 20172022 direct written premiums).Private passenger automobile insurance is our primary product. These policies provide coverage for bodily injury and property damage to others, no-fault personal injury coverage for the insured/insured's car occupants, and physical damage coverage for an insured's own vehicle for collision or other perils. We filed and were approved for a Massachusetts private passenger automobile insurance rate increase of 3.6% effective July 15, 2017. We filed and were approved for a New Hampshire private
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passenger automobile rate increase of 4.1% which was effective December 1, 2016. We are writing private passenger automobile insurance policies in Maine with our initially filed rates.
Commercial Automobile (15.7%(17.4% of 20172022 direct written premiums).Commercial automobile policies provide coverage for bodily injury and property damage to others, no-fault personal injury coverage, and physical damage coverage for an insured's own vehicle for collision or other perils resulting from the ownership or use of commercial vehicles in a business. We offer insurance for commercial vehicles used for business purposes such as private passenger-type vehicles, trucks, tractors and trailers (excluding long-haul trucking), and insure individual vehicles as well as commercial fleets. We filed and were approved for a Massachusetts commercial automobile insurance rate increase
Homeowners (25.3% of 3.8% effective April 1, 2017. We filed and were approved for a New Hampshire commercial automobile insurance rate increase of 6.1% effective March 1, 2017. We are writing commercial automobile insurance policies in Maine with our initially filed rates.
Homeowners (22.7% of 20172022 direct written premiums).We offer a broad selection of coverage forms for qualified policyholders. Homeowners policies provide coverage for losses to a dwelling and its contents from numerous perils, and coverage for liability to others arising from ownership or occupancy. We write policies on homes, condominiums, and apartments. We filed and were approved for a Massachusetts rate increase
Business Owner Policies (2.9% of 3.6% which was effective November 1, 2016. We filed and were approved for a New Hampshire homeowners rate increase of 4.4%, which was effective December 1, 2016. We are writing homeowners insurance policies in Maine with our initially filed rates.
Business Owners Policies (2.7% of 20172022 direct written premiums).We serve eligible small and medium sized commercial accounts with a program that covers apartments and residential condominiums; mercantile establishments, including limited cooking restaurants; offices, including office condominiums; processing and services businesses; special trade contractors; and wholesaling businesses. Business owner policies provide liability and property coverage for many perils, including business interruption from a covered loss. Equipment breakdown coverage is automatically included, and a wide range of additional coverage is available to qualified customers. We write policies for business owners at standard rates with qualifying risks eligible for preferred lower rates.
Personal Umbrella (0.9%(1.0% of 20172022 direct written premiums). We offer personal excess liability coverage over and above the limits of individual automobile, watercraft, and homeowner's insurance policies to clients. We write policies at standard rates with limits of $1,000 to $5,000.
Dwelling Fire (1.2% of 20172022 direct written premiums).We underwrite dwelling fire insurance, which is a limited form of a homeowner's policy for non-owner occupied residences. We write all forms of dwelling fire coverage at standard rates with qualifying risks eligible for preferred lower rates.
Commercial Umbrella (0.1%(0.2% of 20172022 direct written premiums).We offer an excess liability product to clients for whom we underwrite both commercial automobile and business owner policies. The program is directed at commercial automobile risks with private passenger-type automobiles or light and medium trucks. We write commercial umbrella policies at standard rates with limits ranging from $1,000 to $5,000.
Inland Marine (Included(included in our Homeowners direct written premiums).We offer inland marine coverage as an endorsement for all homeowners and business owner policies, and as part of our commercial package policy.policies. Inland marine provides additional coverage for jewelry, fine arts and other items that a homeowners or business owner policy would limit or not cover. Scheduled items valued at more than $5 must meet our underwriting guidelines and be appraised.
Watercraft (Included(included in our Homeowners direct written premiums). We offer watercraft coverage for small and medium sized pleasure craft with maximum lengths of 32 feet, valued at less than $75 and maximum speed of 39 knots. We write this coverage as an endorsement to our homeowner's policies.
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In the wake of the September 11, 2001 tragedies, theThe insurance industry can also wasbe impacted by terrorism, and we have filed and received approval for a number of terrorism endorsements, which limit our liability and property exposure according to the Terrorism Risk Insurance Act of 2002, the Terrorism Risk Insurance Extension Act of 2005, the Terrorism Risk Insurance Program
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Reauthorization Act of 2007, the Terrorism Risk Insurance Program Reauthorization of 2015 and the Terrorism Risk Insurance Program Reauthorization Act of 2015.2019. See "Reinsurance," discussed below.
Distribution
We distribute our products exclusively through independent agents, unlike some of our competitors who use multiple distribution channels. We believe this gives us a competitive advantage with the agents. With the exception of personal automobile business assigned to us by the Massachusetts Automobile Insurance Plan (“MAIP”) or written through CAR’s commercial automobile Servicing Carrier program, we do not accept business from insurance brokers. Our voluntary agents have authority pursuant to our voluntary agency agreement to bind our Insurance Subsidiaries for any coverage that is within the scope of their authority. We reserve the ability to cancel any coverage bound, in accordance with applicable law. In total, our independent agents numbered 892843 and had 1,1071,071 offices (some agencies have more than one office) and approximately 8,55110,015 customer service representatives during 2017.2022.
Voluntary Agents.In 2017,2022, we obtained approximately 91.1%96.5% of our direct written premiums for automobile insurance and 100% of our direct written premiums for all of our other lines of business through our voluntary agents. As of December 31, 2017,2022, we had agreements with 728739 voluntary agents. Our voluntary agents are located in all regions of Massachusetts, New Hampshire and Maine.
We look for agents with profitable portfolios of business. To become a voluntary agent for our Company, we generally require that an agency: (i) have been in business for at least five years; (ii) have exhibited a three year private passenger average ratio of losses, excluding loss adjustment expenses, to net earned premiums ("pure loss ratio") of 65.0% or less on the portion of the agent's portfolio that we would underwrite; (iii) make a commitment for us to underwrite at least 300 policies from the agency during the first twelve months after entering an agreement with us; and (iv) offer multiple product lines. Every year, we review the prior year performance of our agents during the prior year.agents. If an agent fails to meet our profitability standards, we try to work with the agent to improve the profitability of the business it places with us. We generally terminate contracts each year with a few agencies, which, despite our efforts, have been consistently unable to meet our standards. Although independent agents usually represent several unrelated insurers, our goal is to be one of the top two insurance companies represented in each of our agencies, as measured by direct written premiums. No individual agency generated more than 5.0%8.7% of our direct written premiums in 2017.2022.
Massachusetts law guarantees that CAR provides motor vehicle insurance coverage to all qualified applicants.eligible risks. Under the MAIP, personal automobile policies are assigned to us for three years, unless the policyholder is offered a voluntary policy by another insurer. All Massachusetts agents are authorized to submit eligible business to the MAIP for random assignment to a servicing carrier such as Safety Insurance. We are allocated all private passenger residual market business through the MAIP.
CAR runs a reinsurance pool for ceded commercial automobile policies through the Commercial Automobile Program (the “Commercial Automobile Program”). CAR has appointed Safety and three other servicing carriers to process ceded commercial automobile insurance. Safety was reappointed for this program beginningon January 1, 20172022 for an additional five-year term. Historically, CAR ran a separate reinsurance pool for Taxi, Limousine and Car Service risks; however, beginning with the January 1, 2022 policy year, this pool was combined into the Commercial Automobile Program. Approximately $156,000$190,000 of ceded premium is spread equitably among the four servicing carriers. Subject to the Commissioner's review of the Massachusetts Commissioner of Insurance (“the Commissioner”), CAR sets the premium rates for commercial automobile policies reinsured through CAR and this reinsurance pool can generate an underwriting result that is a profit or deficit based upon CAR's rate level. This underwriting result is allocated among every Massachusetts commercial automobile insurance company, including us, based on a company's commercial automobile voluntary market share.
CAR also runs a reinsurance pool for Taxi, Limousine and Car Service risks (the "Taxi/Limo Program"). CAR reappointed Safety as one of the two servicing carriers for this program beginning January 1, 2017 for an additional five-year term. Approximately $11,100 of ceded premium was spread equitably between the two servicing carriers.
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We are assigned independent agents by CAR who can submit commercial business to us in the Commercial Automobile Program and the Taxi/Limo Program, and we classify those agents as Exclusive Representative Producers (“ERPs”).
The table below shows our direct written exposures in each of our product lines for the periods indicated and the change in exposures for each product line.
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| Years Ended December 31, |
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| 2016 |
| 2015 |
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Line of Business | Exposures |
| Change |
| Exposures |
| Change |
| Exposures |
| Change |
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Private passenger automobile: |
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| Voluntary agents | 434,236 |
| (2.8) | % | 446,939 |
| (3.5) | % | 462,917 |
| (1.8) | % |
| MAIP | 9,896 |
| (10.0) |
| 11,000 |
| 22.1 |
| 9,007 |
| 4.6 |
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| Total private passenger automobile | 444,132 |
| (3.0) |
| 457,939 |
| (3.0) |
| 471,924 |
| (1.7) |
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Commercial automobile: |
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| Voluntary agents | 62,419 |
| 1.8 |
| 61,315 |
| 0.5 |
| 60,995 |
| 4.2 |
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| ERP | 12,364 |
| 24.8 |
| 9,907 |
| 30.4 |
| 7,596 |
| 20.6 |
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| Total commercial automobile | 74,783 |
| 5.0 |
| 71,222 |
| 3.8 |
| 68,591 |
| 5.8 |
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Other: |
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Homeowners | 160,313 |
| (1.0) |
| 161,890 |
| (0.5) |
| 162,703 |
| 2.4 |
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Business owners | 9,497 |
| (8.6) |
| 10,385 |
| 2.2 |
| 10,166 |
| 4.4 |
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Personal umbrella | 23,232 |
| (3.0) |
| 23,952 |
| (0.5) |
| 24,083 |
| 2.6 |
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Dwelling fire | 7,116 |
| (2.1) |
| 7,270 |
| (1.5) |
| 7,381 |
| 4.0 |
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Commercial umbrella | 677 |
| (2.5) |
| 694 |
| 0.6 |
| 690 |
| 3.0 |
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| Total other | 200,835 |
| (1.6) |
| 204,191 |
| (0.4) |
| 205,023 |
| 2.6 |
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| Total | 719,750 |
| (1.9) |
| 733,352 |
| (1.6) |
| 745,538 |
| 0.1 |
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Total voluntary agents | 697,490 |
| (2.1) |
| 712,445 |
| (2.3) |
| 728,935 |
| (0.2) |
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| | 2022 | | 2021 | | 2020 | | ||||||
Line of Business | Exposures | | Change | | Exposures | | Change | | Exposures | | Change | | |
Private passenger automobile: | | | | | | | | | | | | | |
| Voluntary agents | 387,463 | | (0.9) | % | 390,919 | | (4.4) | % | 408,873 | | (2.4) | % |
| MAIP | 2,140 | | 1.4 | | 2,110 | | (36.0) | | 3,298 | | (42.9) | |
| Total private passenger automobile | 389,603 | | (0.9) | | 393,029 | | (4.6) | | 412,171 | | (2.9) | |
Commercial automobile: | | | | | | | | | | | | | |
| Voluntary agents | 66,214 | | 0.6 | | 65,848 | | 3.2 | | 63,828 | | (4.8) | |
| ERP | 3,700 | | (1.5) | | 3,755 | | (1.2) | | 3,802 | | (50.8) | |
| Total commercial automobile | 69,914 | | 0.5 | | 69,603 | | 2.9 | | 67,630 | | (9.6) | |
Other: | | | | | | | | | | | | | |
Homeowners | 152,884 | | (0.7) | | 153,980 | | (2.3) | | 157,611 | | (0.8) | | |
Business owners | 8,624 | | (1.7) | | 8,770 | | 0.4 | | 8,735 | | (1.9) | | |
Personal umbrella | 21,099 | | (2.0) | | 21,530 | | (2.7) | | 22,124 | | (2.2) | | |
Dwelling fire | 5,715 | | (4.8) | | 6,000 | | (7.0) | | 6,454 | | (2.7) | | |
Commercial umbrella | 658 | | (2.1) | | 672 | | 3.1 | | 652 | | (4.7) | | |
| Total other | 188,980 | | (1.0) | | 190,952 | | (2.4) | | 195,576 | | (1.1) | |
| Total | 648,497 | | (0.8) | | 653,584 | | (3.2) | | 675,377 | | (3.1) | |
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Total voluntary agents | 642,657 | | (0.8) | | 647,719 | | (3.1) | | 668,277 | | (2.3) | | |
In 2017, 60.3%2022, 65.2% of the private passenger automobile exposures we insure had an other than private passenger policy with us, compared to 58.4%65.6% and 55.8%66.1% in 20162021 and 2015,2020, respectively. In addition, 81.7%81.9% of our homeowners’ policyholders had a matching automobile policy with us in 20172022 compared to 81.9%82.6% in 20162021 and 81.8%82.8% in 2015.2020.
We view the independent agent as our customer and business partner. As a result, a component of our marketing efforts focuses on developing interdependent relationships with leading Massachusetts, New Hampshire and Maine agents that write profitable business and positioning ourselves as the preferred insurance carrier of those agents, thereby receiving a larger portion of each agent's aggregate business. Our principal marketing strategies to agents are:
| to offer a range of products, which we believe enables our agents to meet the insurance needs of their clients; |
| to price our products competitively, including offering discounts when and where appropriate for safer drivers for our personal automobile products, loss-free credits for our homeowner products, paperless e-Customer discounts, and also offering account discounts for policyholders that have more than one policy with us; |
| to design, price and market our products to our agents for their customers to place all their insurance with us; |
| to offer agents competitive commissions, with incentives for placing their more profitable business with us; and |
| to provide a level of support and service that enhances the agent's ability to do business with its clients and with us. |
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We have a comprehensive branding campaign using a variety of radio, television, digital, social and print advertisements.
Commission Schedule and Profit Sharing Plan.We have several programs designed to attract profitable new business from agents by paying them competitive commissions. We recognize our top performing agents by making
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them members of either our Chairman's Elite, Chairman's, President's, Executive's or Preferred Agent's Club. In 2017, members of these Clubs received a commission of up to 18.0% of premiums for each new private passenger auto policy, up to 22.0% of premiums for each new homeowner policy, up to 20.0% for each new commercial auto policy and up to 20% for each new commercial property policy.
Further, we have a competitive agency incentive commission program under which we pay agents up to 7.5%a percentage of premiums based on the loss ratio on their business.
Service and Support. We believe that the level and quality of service and support we provide helps differentiate us from other insurers. We have made a significant investment in information technology designed to facilitate our agents' business. Our AVCAgents Virtual Community website helps agents manage their work efficiently. We provide a substantial amount of information online that agents need to serve their customers, such as information about the status of new policies, bill payments and claims. We are also committed to providing our agents with new information through our Resource Center articles on SafetyInsurance.com to keep their customers informed on how to best protect their auto, home and business. Providing this type of content reduces the number of customer calls we receive and empowers the agent's customer service representatives by enabling them to respond to customers' inquiries while the customer is on the telephone. Finally, we believe that the knowledge and experience of our employees enhances the quality of support we provide.
Underwriting
Our underwriting department is responsible for a number of key decisions affecting the profitability of our business, including:
| pricing of our private passenger automobile, commercial automobile, homeowners, dwelling fire, personal umbrella, business |
| developing new products, coverages, forms and discounts, as well as expansion into new states; |
| determining underwriting guidelines for all our products; and |
| evaluating whether to accept transfers of a portion of an existing or potential new agent's portfolio from another insurer. |
Pricing.Subject to the applicable state insurance department’s review, we set rates for all of our products using our own loss experience, industry loss cost data, residual market deficits, catastrophe modeling and prices charged by our competitors. We have threefour pricing segments for most products, utilizing Safety Insurance for standard rate,rates, Safety Indemnity for preferred rates, Safety Northeast for ultra preferred rates and Safety P&C for ultra preferredhigh value homeowners rates.
Massachusetts Residual Automobile Insurance Markets. Commonwealth Automobile Reinsurers (“CAR”) CAR establishes the rates for personal automobile policies assigned to carriers through the Massachusetts Automobile Insurance Plan (“MAIP”).MAIP. In accordance with Massachusetts law, insurers may only charge MAIP policyholders the lower of the MAIP rate or the company's competitive voluntary market rate. CAR also sets rates for commercial automobile policies, including taxi/limousine/car service policies, reinsured through the CAR residual market pool. All commercial automobile business and taxi/limousine/car service business that is not written in the voluntary market in Massachusetts is apportioned to one of thesethe servicing carriers who handle that handles business on behalf of CAR. Every Massachusetts commercial automobile insurer must bear a portion of the losses of the total commercial reinsurance pool that is serviced by the approved servicing carriers. We are one of four servicing carriers in CAR’s Commercial Automobile Program and one of two servicing carriers in CAR’s Taxi/Limo Program.
Bulk Policy Transfers and New Voluntary Agents.From time to time, we receive proposals from an existing voluntary agent to transfer a portfolio of the agent's business from another insurer to us. Our underwriters model the
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profitability of these portfolios before we accept these transfers. We generally require any new voluntary agent to commit to transfer a portfolio to us consisting of at least 300 policies.
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Policy Processing.Our underwriting department assists in processing policy applications, endorsements, renewals and cancellations. Our proprietary software applications, Safety Express providesand Safety Commercial Express, provide our agents with new business and endorsement entry, real-time policy issuance, for personal lines, immediate printing of declarations pages in agents' offices, policy downloads to most major agency management systems and data imports from Boston Software's WinRaterSinglePoint (Massachusetts) and Vertafore's PL Rater (New(Massachusetts, New Hampshire and Maine). for personal lines.
In personal lines, our agents now submit approximately 99% of all applications for new policies or endorsements for existing policies through Safety Express.
Rate Pursuit. We aggressively monitor all insurance transactions to make sure we receive the correct premium for the risk insured. We accomplish this by verifying pricing criteria. For automobile policies, we verify proper classification of drivers, the make, model, and age of insured vehicles, and the availability of discounts. We also verify that operators are properly listed and classified, assignment of operators to vehicles, and vehicle garaging. In our homeowners and dwelling fire lines, we use third party software to evaluate property characteristics and we conduct property inspections. We have a premium audit program in our business ownersowner program, as well as other loss control reviews for additional commercial lines of business.
Product Management. The Product Management department is responsible for the overall review and updating of our products. The department maintains an annual schedule where each line of business is reviewed and benchmarked withagainst our major competitors. Product offerings, discounts, rate levels and underwriting guidelines are reviewed and updates are performed as required. The department is also is responsible for updating producer materials such as rate and rule manuals, and underwriting guidelines, as well asand promotional materials. In conjunction with the underwriting operations area, the department works with third party vendors that assist with risk information, gatheringdata, and rate pursuit for in forcein-force policies. The department also provides product training and general marketplace education for the organization.
Legal and Regulatory Compliance. The Legal and Regulatory Compliance department provides legal and compliance support to all business units within the company.Company. The department serves as the primary liaison with regulators, government, and industry trade associations and residual market mechanisms.associations. The department also provides legal support to all areas of the company, including general corporate matters and vendor contracting. The department monitors legal and regulatory changes affecting the enterprise and provides guidance on how to comply with those changes. The department additionally reviews business unit operations to identify and address compliance vulnerabilities.
Data GovernanceBusiness Intelligence. The Data GovernanceBusiness Intelligence department uses Safety’s data assets to support decision-making in areas including underwriting, pricing, claims, reserving, reinsurance and assessing catastrophe risks. Data analytics are used to analyze and estimate exposures, loss trends and other risks, and are leveraged to improve companyCompany business performance and customer satisfaction.
Customer Engagement. The Customer Engagement department provides professional customer service to our agents and insureds by continuously identifying new ways to enhance the ease of doing business with us and by looking for new ways to personalize our services for each customer.
Technology
The focuses of our information technology (IT)(“IT”) efforts are:
| to support the strategic goals, objectives and business needs of the Company by aligning our IT annual goals with those of the business assuring that IT resources are being utilized efficiently; |
| to constantly re-engineer internal processes to allow more efficient operations, resulting in lower operating costs; |
| to |
8
| to enable agents to efficiently provide their clients with a high level of service; and |
| to maintain and support a secure computing environment. |
8
We believe that our technology initiatives have increased revenue and decreased costs. For example, these initiativescosts while at the same time improving the customer experience for our employees, agents, and policyholders. In 2021, we introduced our Safety Commercial Express commercial auto quoting and policy issuance system in Massachusetts for new business. During 2022, this system was updated to allow for agent processing of endorsements. We are continuously investing in new technologies including areas such as robotic process automation, artificial intelligence, and automated testing to improve company efficiency.
Innovation Lab. Since 2018 we have allowed ushad an Innovation Lab to reducefoster a culture of innovative thinking, monitor the numberInsureTech landscape and provide Safety, our independent agents, and policyholders with the tools and processes necessary to continuously improve the customer experience and remain competitive in both the current and future insurance marketplace. During 2022, the Innovation Lab did substantial research, performed multiple proof of call-center transactionsconcepts, initiated pilot projects, participated in industry sponsored InsureTech events and presented fully functional technologies to the business for their use. In 2022, the Innovation Lab partnered with Safety’s Commercial Underwriting department to introduce a no code low code product into our technology toolset which was used to develop an underwriting workbench. A proof of concept was also developed in partnership with our Service Center to explore the development of a Customer System of Record application. The Innovation Lab also partnered with the Claims department to select an outbound electronic claims payment system which we perform, andwill look to transfer many manual processing functions from our internal operations to our independent agents. We also believe that these initiatives have contributed to an overall increasesimplement in productivity.2023.
Internal Applications (Intranet)
Our employees access our proprietary and vendor supplied applications through our secure corporate intranet. Our intranet applications streamline internal processes and improve overall operational efficiencies and customer experience in areas including:
Claims. OurA vendor supplied claims system provides the claims department with a workload management application that allows our claims and subrogation adjusters to better manage the claims process. Subrogation refers to the process by which we are reimbursed by other insurers for claims costs we incur due to the fault of their insureds. The use of this application has reduced the time it takes for us to respond to and settle claims, which we believe helps reduce the total amount of our claims expense.expense while also providing a better customer experience for the policyholder and claimant.
The automated adjuster assignment system categorizes our new claims by severity and assigns them to the appropriate adjuster responsible for investigation. Once assigned, the integrated workload management tools facilitate the work of promptly assigning appraisers, investigating liability, issuing checkspayments, and receiving subrogation receipts.
The RadicalGlass.com application allows our claims department to contain glass costs by increasing the windshield repair to replacement ratio. For every windshield that is repaired rather than replaced there is an average savings of approximately $321 per windshield claim.
Our first VIP Claims Center was introduced during 2006 to provide increased service levels to our independent insurance agents and their clients. We currently operate three VIP Claims Centers which use a network of rental car centers and auto body repair shops to provide a higher level of service to the clients of the independent insurance agents while reducing costs, such as rental expense, through reduced cycle times.
Billing. Proprietary andA vendor supplied billing systems, integrated with the systems of our print and lock-box vendors, expedite the processing and collection of premium receipts and finance charges from agents and policyholders. This billing system also allows for policyholder automatic payments (AutoPay) as well as electronic bill (eBill). We believe the sophistication of our direct bill systems help us to limit our bad debt expense. Our bad debt expense as a percentage of direct written premiums was 0.1% in both 20172022 and 2016.2021.
External Applications
Our Agent Technologyagent technology offerings are centralized within our agency portal and feature PowerDesk, Safety Express and Safety Commercial Express. PowerDesk is a web basedweb-based application that allows for billing inquiry, agent payments on behalf of their policyholders, policy inquiry and claims inquiry. Safety Express providesand Safety Commercial Express provide agents with new business and endorsement entry, real timereal-time policy issuance for personal lines, immediate printing of declarations pages in agents' offices, policy downloads to most major agency management systems and data imports from Boston Software's WinRater (Massachusetts) andSinglePoint, Vertafore's PL Rater, (New HampshireEZLynx and Maine).TurboRater. In addition, we provide our
9
agents with commission and claims download for all lines of business, Transformation Station and Transact Now Inquires, e-Claims online claims reporting, e-View daily transaction reports and e-Docs online electronic document file cabinet.
We also provide electronic billing (eBill),eBill, online bill pay (including credit and debit cards), online AutoPay registration, online declarations pages, billing inquiry, claims inquiry, auto and homeowners claims first notice of loss, online auto insurance cards, and bill pay reminder alerts to our agent'sagents’ policyholders through our public website, SafetyInsurance.com. We have also updated our telephone system to
Additionally, we provide a voice activated phone directory, automated billing inquiry and payments, and call center screen pop-up technology.
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We additionally provide policyholders with mobile technology through our Safety Mobile App for iPhone and Android devices. Safety Mobile provides consumers with access to their agent information, bill pay capabilities, the ability to report an automobile or homeowners claim and access to their insurance card, among other features.
Claims
Because of the unique differences between the management ofClaims
On casualty claims and property claims, we use separate departments for each of these types of claims.
Casualty Claims
We have adoptedutilize stringent claims settlement procedures, which include guidelines that establish settlement ranges for soft tissue injuries, which constituted approximately 65%58% of our bodily injury claims in 2017.2022. If we are unable to settle these claims within our pricing guidelines, we explore other cost effectivecost-effective options including alternative disputesdispute resolutions and/or litigation. We believe that these procedures result in providing our adjusting staff with a uniform approach to negotiation.
We believe an important component of handling claims efficiently is prompt investigation and settlement. We find that faster claims settlements often result in less expensive claims settlements. Our E-Claim reporting system is an online product that reduces the time it takes for agents to notify our adjusters about claims, thereby enabling us to contact third-party claimants and other witnesses quickly. Our insureds are able tocan report claims directly by phone, web, or mobile application. In addition, we utilize an after- hoursafter-hours reporting vendor to ensure that new claims can be reported 24 hours per day and 365 days per year.
We believe that early notification results in our adjusters conducting prompt investigations of claims and compiling more accurate information about those claims. Our modern claims workloadsoftware provides our staff with efficient workplan management software also assiststools to assist our adjusters in handling claims quickly.quickly while providing high levels of customer service.
We believe the structure of our casualty claims unitdepartment allows us to respond quickly to claimants. Comprising 120 people, theThe department is organized into distinct claim units that contain loss costs on injury claims. Field adjusters are located geographically for prompt response to claims, with our litigation unit focused on managing loss costs and litigation expenses for serious injury claims.
Additionally, we utilize a special investigation unit to investigate potential fraud in connection with casualty claims. This unit has five dedicated employees including four field investigators.claims presented. In cases where adjusters suspect fraud in connection with a claim, we deploy this special unit to conduct investigations. We deny payment to claimants in cases in which we have succeeded in accumulating sufficient evidence of fraud.
Property Claims
Our propertyauto physical damage claims unit handles propertyunits handle physical damage claims arising in our private passenger and commercial automobile homeowners and other insurance lines. Process automation has streamlined our property claims function. Many of our propertyfunction and in combination with established policy and procedures newly reported claims are now handled byin a proactive manner to ensure that coverages are verified, damages are appraised and claim payments are issued in a timely and efficient manner. This ensures the highest level of customer service to our agents through AVC using our Power Desk software application. As agents receive calls from claimants, Power Desk permitsinsureds while reducing claim cycle times and mitigating claim handling expenses. We continue to vet and implement new methods of appraisal for vehicle damage, including vehicle photo only appraisals within the agent to immediately send information related to the claim directly to us and to an independent appraiser selected by the agent to value the claim.regulatory established guidelines. Once we receive this information, an automated system redirects the claim to the appropriate internal adjuster responsible for investigating the claim to determine liability. Upon determination of liability, the system automatically begins the process of seeking a subrogation recovery from another insurer, if liable. We believe this process results in a shorter time period from when the claimant first contacts the agent to when the
10
claimant receives a claim payment, while enabling our agents to build credibility with their clients by responding to claims in a timely and efficient manner. We benefit from decreased labor expenses from the need for fewer employees
Our property claims division oversees physical damage claims arising in our homeowners and other than auto insurance lines. Property Field Adjusters are located remotely across our service areas to handle larger more complex property losses. Our modern claims software system and applications enables more efficient handling of the reduced property claims call volume.
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Another important factor in keeping our overall property claims costs low is collectingloss through settlement and potential subrogation. We also utilize house counsel on subrogation recoveries. We track the amounts we pay out in claims costsrecoveries to reduce collection expenses and identify cases in which we believe we can reclaim some or all of those costs through the use of our automated workload management tools.maximize damage recoveries.
Significant periods of time can elapse between the occurrence of an insured loss, the reporting of the loss to the insurer and the insurer's payment of that loss. To recognize liabilities for unpaid losses, insurers establish reserves as balance sheet liabilities representing estimates of amounts needed to pay reported and unreported losses and the expenses associated with investigating and paying the losses, or loss adjustment expenses. Every quarter, we review and establish our reserves. Regulations promulgated by the Commissioner require us to annually obtain a certification from either a qualified actuary or an approved loss reserve specialist, who may be one of our employees, that our loss and loss adjustment expenses reserves are reasonable.
When a claim is reported, claims personnel establish a "case reserve" for the estimated amount of the ultimate payment. The amount of the reserve is primarily based upon an evaluation of the type of claim involved, the circumstances surrounding each claim and the policy provisions relating to the loss. The estimate reflects informed judgment of such personnel based on general insurance reserving practices and on the experience and knowledge of the claims person. During the loss adjustment period, these estimates are revised as deemed necessary by our claims department based on subsequent developments and periodic reviews of the cases.
In accordance with industry practice, we also maintain reserves for estimated losses incurred but not yet reported. Incurred but not yet reported reserves are determined in accordance with commonly accepted actuarial reserving techniques on the basis of our historical information and experience. We make adjustments to incurred but not yet reported reserves quarterly to take into account changes in the volume of business written, claims frequency and severity, our mix of business, claims processing and other items that can be expected to affect our liability for losses and loss adjustment expenses over time.
When reviewing reserves, we analyze historical data and estimate the impact of various loss development factors, such as our historical loss experience and that of the industry, legislative enactments, judicial decisions, legal developments in imposition of damages, and changes and trends in general economic conditions, including the effects of inflation. There is no precise method, however, for evaluating the impact of any specific factor on the adequacy of reserves, because the eventual development of reserves is affected by many factors. After taking into account all relevant factors, management believes that our provision for unpaid losses and loss adjustment expenses at December 31, 20172022 is adequate to cover the ultimate net cost of losses and claims incurred as of that date.
Management determines its loss and loss adjustment expense ("LAE") reservesreserve estimates based upon the analysis of the Company's actuaries. Management has established a process for the Company's actuaries to follow in establishing reasonable reserves. The process consists of meeting with our claims department, establishing ultimate incurred losses by using development models accepted by the actuarial community, and reviewing the analysis with management. The Company's estimate for loss and LAE reserves, net of the effect of ceded reinsurance, ranges from a low of $440,918$423,452 to a high of $510,166$481,902 as of December 31, 2017.2022. The Company's net loss and LAE reserves, based on our actuaries' best estimate, were set at $490,969$456,204 as of December 31, 2017.2022. The ultimate liability may be greater or less than reserves carried at the balance sheet date. Establishment of appropriate reserves is an inherently uncertain process, and there can be no certainty that currently established reserves will prove adequate in light of subsequent actual experience. To the extent that reserves are inadequate and are strengthened, the amount of such increase is treated as a charge to earnings in the period that the deficiency is recognized. To the extent that reserves are redundant and are released, the amount of the release is a credit to earnings in the period the redundancy is recognized. We do not discount any of our reserves.
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The following table presents development information on changes in the reserves for losses and LAE of our Insurance Subsidiaries for each year in the three year period ended December 31, 2017.2022, 2021 and 2020.
|
|
|
|
|
|
| ||||||||||||
|
| Years Ended December 31, | ||||||||||||||||
|
| 2017 |
| 2016 |
| 2015 | ||||||||||||
| | | | | | | ||||||||||||
| | Year Ended | ||||||||||||||||
|
| 2022 |
| 2021 |
|
| 2020 | |||||||||||
Reserves for losses and LAE at beginning of year |
| $ | 560,321 |
| $ | 553,977 |
| $ | 482,012 | | $ | 570,651 | | $ | 567,581 | | $ | 610,566 |
Less receivable from reinsurers related to unpaid losses and LAE |
|
| (83,724) |
|
| (68,261) |
| (61,245) | |
| (90,667) | |
| (106,311) | | | (122,372) | |
Net reserves for losses and LAE at beginning of year |
|
| 476,597 |
|
| 485,716 |
| 420,767 | |
| 479,984 | |
| 461,270 | | | 488,194 | |
Incurred losses and LAE, related to: |
|
|
|
|
|
|
| | | | | | | | ||||
Current year |
|
| 545,671 |
|
| 538,881 |
| 642,882 | |
| 549,258 | |
| 515,400 | | 459,400 | ||
Prior years |
|
| (41,784) |
|
| (45,448) |
| (30,313) | |
| (57,279) | |
| (53,673) | | | (54,844) | |
Total incurred losses and LAE |
|
| 503,887 |
|
| 493,433 |
| 612,569 | |
| 491,979 | |
| 461,727 | | | 404,556 | |
Paid losses and LAE related to: |
|
|
|
|
|
|
| | | | | | | | ||||
Current year |
|
| 325,049 |
|
| 328,046 |
| 415,256 | |
| 342,971 | |
| 310,116 | | 277,754 | ||
Prior years |
|
| 164,466 |
|
| 174,506 |
| 132,364 | |
| 172,788 | |
| 132,897 | | | 153,726 | |
Total paid losses and LAE |
|
| 489,515 |
|
| 502,552 |
| 547,620 | |
| 515,759 | |
| 443,013 | | | 431,480 | |
Net reserves for losses and LAE at end of period |
|
| 490,969 |
|
| 476,597 |
| 485,716 | |
| 456,204 | |
| 479,984 | | 461,270 | ||
Plus receivable from reinsurers related to unpaid losses and LAE |
|
| 83,085 |
|
| 83,724 |
| 68,261 | |
| 93,394 | |
| 90,667 | | | 106,311 | |
Reserves for losses and LAE at end of period |
| $ | 574,054 |
| $ | 560,321 |
| $ | 553,977 | | $ | 549,598 | | $ | 570,651 | | $ | 567,581 |
|
|
|
|
|
|
| ||||||||||||
The following table represents the development of reserves, net of reinsurance, for calendar years 20072012 through 2017.2022. The top line of the table shows the reserves at the balance sheet date for each of the indicated years. This represents the estimated amounts of losses and loss adjustment expenses for claims arising in all years that were unpaid at the balance sheet date, including losses that had been incurred but not yet reported to us. The upper portion of the table shows the cumulative amounts paid as of the end of each successive year with respect to those claims. The lower portion of the table shows the re-estimated amount of the previously recorded reserves based on experience as of the end of each succeeding year, including cumulative payments made since the end of the respective year. The estimate changes as more information becomes known about the payments, frequency and severity of claims for individual years. Favorable loss development, shown as a cumulative redundancy in the table, exists when the original reserve estimate is greater than the re-estimated reserves at December 31, 2017.2022.
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Information with respect to the cumulative development of gross reserves (that is, without deduction for reinsurance ceded) also appears at the bottom portion of the table.
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|
|
| As of and for the Year Ended December 31, | ||||||||||||||||||||
|
| 2017 |
| 2016 |
| 2015 |
| 2014 |
| 2013 |
| 2012 |
| 2011 |
| 2010 |
| 2009 |
| 2008 |
| 2007 |
Reserves for losses and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LAE originally estimated: |
| $ 490,969 |
| $ 476,597 |
| $ 485,716 |
| $ 420,767 |
| $ 394,668 |
| $ 371,657 |
| $ 352,098 |
| $ 351,244 |
| $ 374,832 |
| $ 391,070 |
| $ 393,430 |
Cumulative amounts paid as of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One year later |
|
|
| 164,466 |
| 174,505 |
| 132,364 | 34,098 | 133,288 |
| 124,855 |
| 130,204 |
| 128,854 |
| 130,960 |
| 126,858 |
| 142,259 |
Two years later |
|
|
|
|
| 250,305 |
| 189,367 |
| 178,411 |
| 175,822 |
| 181,739 |
| 176,774 |
| 183,061 |
| 189,897 |
| 195,798 |
Three years later |
|
|
|
|
|
|
| 223,465 |
| 207,626 |
| 199,741 |
| 211,578 |
| 205,171 |
| 211,182 |
| 217,695 |
| 234,359 |
Four years later |
|
|
|
|
|
|
|
|
| 223,743 |
| 213,847 |
| 223,941 |
| 219,310 |
| 224,831 |
| 233,160 |
| 248,560 |
Five years later |
|
|
|
|
|
|
|
|
|
|
| 221,363 |
| 231,433 |
| 224,354 |
| 232,177 |
| 239,553 |
| 254,915 |
Six years later |
|
|
|
|
|
|
|
|
|
|
|
|
| 233,137 |
| 226,644 |
| 233,853 |
| 241,587 |
| 257,362 |
Seven years later |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 227,147 |
| 235,158 |
| 241,999 |
| 257,889 |
Eight years later |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 235,292 |
| 242,705 |
| 258,173 |
Nine years later |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 242,793 |
| 258,786 |
Ten years later |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 258,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
| As of and for the Year Ended December 31, | ||||||||||||||||||||
|
| 2017 |
| 2016 |
| 2015 |
| 2014 |
| 2013 |
| 2012 |
| 2011 |
| 2010 |
| 2009 |
| 2008 |
| 2007 |
Reserves re-estimated as of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One year later |
|
|
| $ 434,813 |
| $ 440,268 |
| $ 390,452 |
| $ 357,300 |
| $ 342,767 |
| $ 334,788 |
| $ 314,561 |
| $ 326,676 |
| $ 347,004 |
| $ 357,492 |
Two years later |
|
|
|
|
| 406,253 |
| 348,660 |
| 328,182 |
| 308,028 |
| 309,096 |
| 293,480 |
| 294,696 |
| 307,918 |
| 325,317 |
Three years later |
|
|
|
|
|
|
| 313,100 |
| 295,788 |
| 283,592 |
| 282,441 |
| 273,332 |
| 279,542 |
| 282,565 |
| 297,224 |
Four years later |
|
|
|
|
|
|
|
|
| 274,214 |
| 263,787 |
| 268,759 |
| 254,652 |
| 264,697 |
| 271,693 |
| 281,068 |
Five years later |
|
|
|
|
|
|
|
|
|
|
| 250,064 |
| 255,925 |
| 245,869 |
| 252,249 |
| 261,845 |
| 274,179 |
Six years later |
|
|
|
|
|
|
|
|
|
|
|
|
| 248,353 |
| 238,404 |
| 247,023 |
| 254,308 |
| 268,596 |
Seven years later |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 235,047 |
| 242,223 |
| 250,760 |
| 263,797 |
Eight years later |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 240,150 |
| 247,037 |
| 261,319 |
Nine years later |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 245,811 |
| 259,489 |
Ten years later |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 258,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(redundancy) deficiency 2016 |
|
|
| (41,784) |
| (79,463) |
| (107,667) |
| (120,454) |
| (121,593) |
| (103,745) |
| (116,197) |
| (134,682) |
| (145,259) |
| (134,963) |
|
|
|
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|
| As of and for the Year Ended December 31, | ||||||||||||||||||||
|
| 2017 |
| 2016 |
| 2015 |
| 2014 |
| 2013 |
| 2012 |
| 2011 |
| 2010 |
| 2009 |
| 2008 |
| 2007 |
Gross liability-end of year |
| $ 574,054 |
| $ 560,321 |
| $ 553,977 |
| $ 482,012 |
| $ 455,014 |
| $ 423,842 |
| $ 403,872 |
| $ 404,391 |
| $ 439,706 |
| $ 467,559 |
| $ 477,720 |
Reinsurance recoverables |
| 83,085 |
| 83,724 |
| 68,261 |
| 61,245 |
| 60,346 |
| 52,185 |
| 51,774 |
| 53,147 |
| 64,874 |
| 76,489 |
| 84,290 |
Net liability-end of year |
| 490,969 |
| 476,597 |
| 485,716 |
| 420,767 |
| 394,668 |
| 371,657 |
| 352,098 |
| 351,244 |
| 374,832 |
| 391,070 |
| 393,430 |
Gross estimated liability-latest |
|
|
| 497,416 |
| 449,661 |
| 362,788 |
| 316,454 |
| 285,188 |
| 282,146 |
| 267,161 |
| 277,563 |
| 287,583 |
| 305,015 |
Reinsurance recoverables-latest |
|
|
| 62,603 |
| 43,408 |
| 49,688 |
| 42,240 |
| 35,124 |
| 33,793 |
| 32,114 |
| 37,413 |
| 41,772 |
| 46,548 |
Net estimated liability-latest |
|
|
| 434,813 |
| 406,253 |
| 313,100 |
| 274,214 |
| 250,064 |
| 248,353 |
| 235,047 |
| 240,150 |
| 245,811 |
| 258,467 |
| | | | | | | | | | | | | | | | | | | | | | |
| | As of and for the Year Ended December 31, | ||||||||||||||||||||
| | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 | | 2012 |
Reserves for losses and | | | | | | | | | | | | | | | | | | | | | | |
LAE originally estimated: | | $ 456,204 | | $ 479,984 | | $ 461,270 | | $ 488,194 | | $ 476,321 | | $ 490,969 | | $ 476,597 | | $ 485,716 | | $ 420,767 | | $ 394,668 | | $ 371,657 |
Cumulative amounts paid as of: | | | | | | | | | | | | | | | | | | | | | | |
One year later | | | | 172,788 | | 132,897 | | 153,727 | | 164,595 | | 159,234 | | 164,466 | | 174,506 | | 132,364 | | 133,288 | | 124,855 |
Two years later | | | | | | 202,320 | | 216,822 | | 230,294 | | 241,032 | | 231,473 | | 250,306 | | 189,367 | | 178,411 | | 175,822 |
Three years later | | | | | | | | 263,149 | | 269,065 | | 282,242 | | 283,812 | | 290,287 | | 223,465 | | 207,626 | | 199,741 |
Four years later | | | | | | | | | | 293,203 | | 304,009 | | 305,024 | | 310,140 | | 241,589 | | 223,743 | | 213,847 |
Five years later | | | | | | | | | | | | 318,471 | | 318,149 | | 319,817 | | 252,714 | | 231,346 | | 221,363 |
Six years later | | | | | | | | | | | | | | 325,785 | | 325,669 | | 255,581 | | 234,480 | | 223,829 |
Seven years later | | | | | | | | | | | | | | | | 328,703 | | 256,733 | | 235,562 | | 225,169 |
Eight years later | | | | | | | | | | | | | | | | | | 257,956 | | 235,807 | | 225,320 |
Nine years later | | | | | | | | | | | | | | | | | | | | 236,039 | | 225,354 |
Ten years later | | | | | | | | | | | | | | | | | | | | | | 225,356 |
| | | | | | | | | | | | | | | | | | | | | | |
| | As of and for the Year Ended December 31, | ||||||||||||||||||||
| | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 | | 2012 |
Reserves re-estimated as of: | | | | | | | | | | | | | | | | | | | | | | |
One year later | | | | $ 422,705 | | $ 407,597 | | $ 433,350 | | $ 434,273 | | $ 434,481 | | $ 434,813 | | $ 440,268 | | $ 390,452 | | $ 357,300 | | $ 342,767 |
Two years later | | | | | | 359,564 | | 395,578 | | 393,948 | | 400,312 | | 391,630 | | 406,253 | | 348,660 | | 328,182 | | 308,028 |
Three years later | | | | | | | | 365,786 | | 372,282 | | 376,584 | | 372,379 | | 376,201 | | 313,100 | | 295,788 | | 283,592 |
Four years later | | | | | | | | | | 355,215 | | 365,267 | | 359,549 | | 361,335 | | 287,131 | | 274,214 | | 263,787 |
Five years later | | | | | | | | | | | | 355,415 | | 352,330 | | 353,983 | | 276,309 | | 255,368 | | 250,064 |
Six years later | | | | | | | | | | | | | | 346,607 | | 347,373 | | 272,178 | | 248,746 | | 236,373 |
Seven years later | | | | | | | | | | | | | | | | 343,345 | | 268,514 | | 245,071 | | 232,657 |
Eight years later | | | | | | | | | | | | | | | | | | 266,532 | | 243,000 | | 229,932 |
Nine years later | | | | | | | | | | | | | | | | | | | | 241,594 | | 228,184 |
Ten years later | | | | | | | | | | | | | | | | | | | | | | 227,745 |
| | | | | | | | | | | | | | | | | | | | | | |
Cumulative | | | | | | | | | | | | | | | | | | | | | | |
(redundancy) deficiency 2022 | | | | (57,279) | | (101,706) | | (122,408) | | (121,106) | | (135,554) | | (129,990) | | (142,371) | | (154,235) | | (153,074) | | (143,912) |
| | | | | | | | | | | | | | | | | | | | | | |
| | As of and for the Year Ended December 31, | ||||||||||||||||||||
| | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 | | 2012 |
Gross liability-end of year | | $ 549,598 | | $ 570,651 | | $ 567,580 | | $ 610,566 | | $ 584,719 | | $ 574,054 | | $ 560,321 | | $ 553,977 | | $ 482,012 | | $ 455,014 | | $ 423,842 |
Reinsurance recoverables | | 93,394 | | 90,667 | | 106,310 | | 122,372 | | 108,398 | | 83,085 | | 83,724 | | 68,261 | | 61,245 | | 60,346 | | 52,185 |
Net liability-end of year | | 456,204 | | 479,984 | | 461,270 | | 488,194 | | 476,321 | | 490,969 | | 476,597 | | 485,716 | | 420,767 | | 394,668 | | 371,657 |
Gross estimated liability-latest | | | | 505,849 | | 451,183 | | 474,297 | | 452,210 | | 434,590 | | 406,100 | | 373,191 | | 305,090 | | 274,009 | | 254,442 |
Reinsurance recoverables-latest | | | | 83,144 | | 91,619 | | 108,511 | | 96,995 | | 79,175 | | 59,493 | | 29,846 | | 38,558 | | 32,415 | | 26,697 |
Net estimated liability-latest | | | | 422,705 | | 359,564 | | 365,786 | | 355,215 | | 355,415 | | 346,607 | | 343,345 | | 266,532 | | 241,594 | | 227,745 |
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In evaluating the information in the table, it should be noted that each amount entered incorporates the effects of all changes in amounts entered for prior periods. Thus, if the 20132022 estimate for a previously incurred loss was $150 and the loss was reserved at $100 in 2009,2018, the $50 deficiency (later estimate minus original estimate) would be included in the cumulative (redundancy) deficiency in each of the years 2009-20132018-2021 shown in the table. It should further be noted that the table does not present accident or policy year development data. In addition, conditions and trends that have affected the development of liability in the past may not necessarily recur in the future. Accordingly, it is not appropriate to extrapolate future redundancies or deficiencies from the table.
As the table shows, our net reserves grew at a faster rate than our gross reserves over the ten-year period. As we have grown, we have been able to retain a greater percentage of our direct business. Additionally, in the past we conducted substantial business as a servicing carrier for other insurers, in which we would service the residual market automobile insurance business assigned to other carriers for a fee. All business generated through this program was ceded to the other carriers. As we reduced the amount of our servicing carrier business, our proportion of reinsurance ceded diminished.
The table also shows that we have substantially benefited in the current and prior years from releasing redundant reserves. In the years ended December 31, 2017, 2016,2022, 2021, and 20152020 we decreased loss reserves related to prior years by $41,784, $45,448$57,279, $53,673 and $30,313,$54,844, respectively. Reserves and development are discussed further in Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations, Executive Summary and Overview.
As a result of our focus on core business lines since our founding in 1979, we believe we have no specific exposure to asbestos or environmental pollution liabilities.
Reinsurance
Reinsurance involves an insurance company transferring (ceding) a portion of its exposure on insurance underwritten by it to another insurer (reinsurer). The reinsurer assumes a portion of the exposure in return for a share of the premium. Reinsurance does not legally discharge an insurance company from its primary liability for the full amount of the policies, but it does make the reinsurer liable to the company for the reinsured portion of any loss realized.
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We reinsure with other insurance companies a portion of our potential liability under the policies we have underwritten, thereby protecting us against an unexpectedly large loss or a catastrophic occurrence that could produce large losses, primarily in our homeowners line of business. We are selective in choosing our reinsurers, seeking only those companies that we consider to be financially stable and adequately capitalized. In an effort to minimize exposure to the insolvency of a reinsurer, we continually evaluate and review the financial condition of our reinsurers. Swiss Re, our primary reinsurer, maintains an A.M. Best rating of "A+" (Superior). Most of our other reinsurers have an A.M. Best rating of “A+” (Superior) or “A” (Excellent).
We maintain reinsurance coverage to help lessen the effect of losses from catastrophic events, maintaining coverage that during 20172022 protected us in the event of a "130-year"135-year storm" (that is, a storm of a severity expected to occur once in a 130-year135-year period). We use various software products to measure our exposure to catastrophe losses and the probable maximum loss to us for catastrophe losses such as hurricanes. The models include estimates for our share of the catastrophe losses generated in the residual market for property insurance by the Massachusetts Property Insurance Underwriting Association ("FAIR Plan"). In 2017,2022, we purchased fourthree layers of excess catastrophe reinsurance providing $615,000$590,000 of coverage for property losses in excess of $50,000$75,000 up to a maximum of $665,000. Our reinsurers’ co-participation is 65.0%80.0% of $100,000$75,000 for the 1st layer, 80.0% of $280,000$250,000 for the 2nd layer, and 80.0% of $135,000$265,000 for the 3rd layer, and 80.0% of $100,000 for the 4th layer.
For 2018,2023, we have purchased fourthree layers of excess catastrophe reinsurance providing $615,000$590,000 of coverage for property losses in excess of $50,000$75,000 up to a maximum of $665,000. Our reinsurers’ co-participation is 50.0%75.0% of $50,000$75,000 for the 1st layer, 80.0%75.0% of $50,000250,000 for the 2nd layer 80.0%and 75.0% of $250,000$265,000 for the 3rd layer and 80% of $265,000
13
for the 4th layer. As a result of the changes to the models, and our revised reinsurance program, our catastrophe reinsurance in 2018 protects us in the event of a “137-year storm” (that is, a storm of a severity expected to occur once in a 137-year period).
We also have casualty excess of loss reinsurance for large casualty losses occurring in our automobile, homeowners, dwelling fire, and business owners, and commercial packageowner lines of business in excess of $2,000 up to a maximum of $10,000. We have property excess of loss reinsurance coverage for large property losses, with coverage in excess of $2,000$2,500 up to a maximum of $20,000, for our homeowners, and business owners, and commercial package policies.owners. In addition, we have liability excess of loss reinsurance for umbrella large losses in excess of $1,000 up to a maximum of $10,000. We also have various reinsurance agreements with Hartford Steam Boiler Inspection and Insurance Company, of which the primary contract is a quota share agreement under which we cede 100% of the premiums and losses for the equipment breakdown coverage under our business owner policies and commercial package policies.
Our reinsurance program excludes coverage for acts of terrorism, except for fire or collapse losses as a result of terrorism, under homeowners, dwelling fire, private passenger automobile and commercial automobile policies.
terrorism. The Terrorism Risk Insurance Program Reauthorization Act of 2002 ("TRIA") was signed into law on November 26, 2002, and expired December 31, 2005. The Terrorism Risk Insurance Extension Act of 20052019 was signed into law on December 22, 2005, and expired December 31, 2007. The20, 2019 which extended the Terrorism Risk Insurance Extension Act of 2007 ("TRIEA"(“TRIA”) was signed into law on December 26, 2007 which reauthorized TRIA for seven years, expandedthrough the definition of an "Act of Terrorism" while expanding the private sector role and reducing the federal share of compensation for insured losses under the program. TRIA expired on December 31, 2014, but on January 12, 2015 Congress reauthorized TRIA retroactive to January 1, 2015 with the program now lasting through 2020.year 2027. The intent of this legislation is to provide federal assistance to the insurance industry for the needs of commercial insurance policyholders with the potential exposure for losses due to acts of terrorism. The TRIEATRIA provides reinsurance for certified acts of terrorism.
In addition to the above mentioned reinsurance programs and as described in more detail above under The Massachusetts Property and Casualty Insurance Market, we are a participant in CAR, a state-established body that, in part, runs the residual market reinsurance programs for commercial automobile insurance in Massachusetts under which premiums, expenses, losses and loss adjustment expenses on ceded business are shared by all insurers writing automobile insurance in Massachusetts. We also participate in the FAIR Plan in which premiums, expenses, losses and loss adjustment expenses on homeowners business that cannot be placed in the voluntary market are shared by all insurers writing homeowners insurance in Massachusetts. The FAIR Plan’s exposure to catastrophe losses increased and as a result, the FAIR Plan decided to buy reinsurance to reduce their exposure to catastrophe losses. On July 1, 2017,2022, the FAIR Plan purchased $2,000,000$1,800,000 of catastrophe reinsurance for property losses with retention of $100,000.
On December 15, 2015, the Company filed for arbitration with a reinsurer in regards to the reinsurance recoverable resulting from the 2015 winter storm losses that are admissible under our contract. The total amount of recoverable in dispute, which is based on our total incurred loss, was $20,918 and $22,838 as of December 31, 2017 and 2016, respectively. The change in the recovery is attributable to changes in the total incurred loss for reserve development. On January 8, 2018 the Company received a final order from the panel of arbitrators in which the reinsurer would pay the Company $9,200 for settlement of all paid and outstanding losses. The remaining unrecovered amount of $11,718 was expensed in 2017.
At December 31, 2017 and December 31, 2016, the reinsurance recoverable on paid and unpaid loss and loss adjustment expenses related to the 2015 snow event from all reinsurers was $675 and $31,701, respectively.
At December 31, 2017,2022, we also had $104,992$115,058 due from CAR comprising of loss and loss adjustment expense reserves, unearned premiums and reinsurance recoverables.
On March 10, 2005, our Board of Directors (the “Board”) adopted a resolution that prohibits Safety from purchasing finite reinsurance (reinsurance that transfers only a relatively finite or limited amount of risk to the reinsurer) without approval by the Board. To date, the Company has never purchased a finite reinsurance contract.
14
The property and casualty insurance business is highly competitive and many of our competitors have substantially greater financial and other resources than we do. We compete with both large national writers and smaller regional companies. Our competitors include companies which, like us, serve the independent agency market, as well as companies which sell insurance directly to customers. Direct writers may have certain competitive advantages over agency writers, including increased name recognition, loyalty of the customer base to the insurer rather than to an independent agency, and potentially, lower cost structures. A material reduction in the amount of business independent agents sell would adversely affect us. Further, we and others compete on the basis of the commissions and other cash and non-cash incentives provided to agents.
Although, historically, a number of national insurers that are much larger than we are have chosen not to compete in a material way in the Massachusetts private passenger automobile market, since 2008, several new companies have entered the market. These companies include some that would be able to sustain significant losses in order to acquire market share, as well as others which use distribution methods that compete with the independent agent channel. There can be no assurance that we will be able to compete effectively against these companies in the future.
Our principal competitors within the Massachusetts private passenger automobile insurance market are MAPFRE SA, Government Employees Insurance Company, Arbella Mutual Insurance Company and Liberty Mutual Insurance Company, which held 25.5%20.9%, 10.4%16.2%, 7.8% and 9.8%7.7% market shares based on automobile exposures,premiums, respectively, in 20172022 according to CAR.
We are the second largest writer of commercial automobile insurance in Massachusetts with a market share of As of November 2017 we became15.6%.12.6% in 2022. Other principal competitors in the Massachusetts commercial automobile insurance market are MAPFRE SA, Arbella Mutual Insurance Company and The Travelers IndemnityProgressive Casualty Insurance Company, which held 15.6%, 10.9%13.8 %, 10.6% and 7.6%8.8% market shares based on automobile exposures,premium, respectively, according to CAR. This includes our share of residual market business as one of four servicing carriers in CAR’s Commercial Automobile Program and one of two servicing carriers in CAR’s Taxi/Limo Program.
We are the third largest writer of homeowners insurance business in Massachusetts, with a market share of 7.3%6.5% in 2017.2021. Our principal competitors within the Massachusetts homeowners insurance market are MAPFRE SA, Liberty Mutual and Arbella Mutual Insurance Company,The Andover Companies, which held 13.5%12.2%, 11.0%9.2% and 6.8%6.2% market shares respectively in 2017.2021 (according to S&P Global Market Intelligence).
EmployeesHuman Capital
At December 31, 2017,2022, we employed 623538 employees who all work in the New England region. The management team establishes hiring and compensation practices for our Company. The Board is periodically updated on key employee engagement and employee relations measures. In addition, the Board’s Compensation Committee is responsible for reviewing performance and approving compensation paid to senior leaders. Our Human Resources team, led by our Chief Financial Officer, supports the Compensation Committee in the execution of its responsibilities. In addition to the day-to-day support, they provide to our management team, the Human Resources team monitors the pulse of our employee population.
As noted in our 2021 Environmental, Social and Governance (“ESG”) Report, located on our Company website, we create a workplace where all employees are treated with dignity and respect, and individual differences are valued, all with the goal of securing the trust and satisfaction of our employees. The Company is committed to a policy of inclusiveness and is committed to actively seeking out highly-qualified candidates with diverse gender, race, color, religion, ethnicity, age, marital status, handicap, sexual orientation, gender identity or expression, and backgrounds. The Company prioritizes an environment where employees are respected, inspired to perform at their best, and are recognized for their contributions. We persistently work to improve the employee experience in support of our continuing strategic objective to attract, retain and develop talent in the insurance industry. Our commitment to a robust talent pool starts at the top. The Board engages with the Compensation Committee annually to review executive level compensation, consider key pipeline talent and conduct succession planning. In addition, our leadership team conducts a comprehensive
15
annual review process across our organization each year. We have a history of promotion from within as approximately 20% of our organization has 25 years of experience at Safety.
We offer competitive pay and benefits to our employees. In addition to competitive salaries, all management level employees are included in our long-term incentive compensation program where they can receive a combination of time and performance-based awards. The Company also engages in a number of additional practices to ensure pay fairness, including:
| ● | Centralized compensation function ensuring consistent programs and practices across the enterprise; |
| ● | Enterprise-wide framework for evaluating and aligning roles and compensation levels based on job responsibilities, strategic importance of the role, and other relevant factors; |
| ● | Prohibition against asking external job applicants for current or historical compensation information; |
| ● | Individual compensation decisions consider each employee’s experience, proficiency, and performance; |
| ● | Multiple levels of review and approval required for all compensation decisions. |
We are committed to our extensive, long-standing policies and practices to ensure fair pay across the organization, while also staying attuned to external best practices and insights, and leveraging input from our pay consultants.
We further foster our culture through our robust learning and development program and our competitive benefit programs. Our extensive benefits include a variety of items, not limited to the following:
| ● | Medical and vision plan options; |
| ● | Dental options; |
| ● | Company paid life-insurance; |
| ● | 401(k) plan with company matching contributions of 8%; |
| ● | Sick hours; |
| ● | Paid holidays; |
| ● | Flexible work schedules, including remote work arrangements; |
| ● | Tuition reimbursement that is not capped; |
| ● | Short and long-term disability; |
| ● | Family medical leave; |
| ● | Parental leave; |
| ● | Employee assistance program. |
Prior to COVID-19, approximately half of our employees participated in a work from home program that helps contribute to a flexible work-life balance and allows the Company to minimize the real estate rented at our home office. In response to the pandemic, we quickly transitioned all other employees to a work from home environment and have the capacity for 100% of our workforce to work in a remote setting. Our employees are not covered by any collective bargaining agreement.
Our employees give both their time and their financial resources to charities of all types, and the Company promotes corporate citizenship through charitable donations and Company-sponsored volunteer activities. Safety is committed to making a positive impact on the communities where our employees live and work through our matching gift program, corporate giving and employee volunteerism. We help employees amplify their community impact by providing our employees with a 1:1 match on their donations to recognized charitable organizations. The Safety Insurance Charitable Foundation was established in 2005 and has provided financial support for a wide array of charities in areas such as community service, education, job training, homelessness, arts/culture, food banks, youth programs, healthcare, medical research and disaster relief.
The reputation of the Company depends on the conduct of its Board, officers, and employees. Every employee who is associated with Safety must play a part in maintaining our corporate reputation for the highest ethical standards. Management considers our relationship with our employees to be good.strong.
16
Investments
Investment income is an important source of revenue for us and the return on our investment portfolio has a material effect on our net earnings. Our investment objective is to focus on maximizing total returns while investing conservatively. We maintain a high-quality investment portfolio consistent with our established investment policy. As of December 31, 2017,2022, our portfolio of fixed maturity investments was comprised principally of investment grade corporate fixed maturity securities, U.S. government and agency securities, and asset-backed securities. The portion of our non-investment grade portfolio of fixed maturity investments is primarily comprised of variable rate secured and senior bank loans and high yield bonds.
According to our investment guidelines, no more than 2.0% of our portfolio may be invested in the securities of any one issuer (excluding U.S. government-backed securities). This one issuer must be rated "A" or above by Moody's. In addition, no more than 0.5% of our portfolio may be invested in securities of any one issuer rated "Baa," or the lowest investment grade assigned by Moody's. Of the less than 15.0% of our portfolio invested in senior bank loans and high yield bonds at December 31, 2017,2022, no more than 5.0% may be invested in the securities of any one issuer, no more than
15
10.0% may be invested in any issuers total outstanding debt issue, and a maximum of 10.0% may be invested in securities unrated or rated "B-" or below by Moody's. We continually monitor the mix of taxable and tax-exempt securities in an attempt to maximize our total after-tax return. Since 1986, we have utilizedWe utilize the services of a third-party investment manager.managers.
We believe that the incorporation of material, non-financial factors into investment selection and risk management has the potential to enhance long-term investment returns. We incorporate Environmental, Social & Governance (“ESG”) factors managed for us by third-party investment managers. We measure our exposure to ESG risks at both individual asset classes and total portfolio levels.
The following table reflects the composition of our investment portfolio as of December 31, 20172022 and 2016.2021.
| | | | | | | | | | | | |
| | As of December 31, | ||||||||||
| | 2022 | | 2021 | ||||||||
| | Estimated | | % of | | | Estimated | | % of | |||
| | Fair Value | | Portfolio | | | Fair Value | | Portfolio | | ||
U.S. Treasury Securities | $ | 1,669 | | 0.1 | % | | $ | 324 | | 0.0 | % | |
Obligations of states and political subdivisions | | 54,069 | | 3.9 | | | | 116,302 | | 7.4 | | |
Residential mortgage-backed securities (1) | | 234,502 | | 16.7 | | | | 241,464 | | 15.4 | | |
Commercial mortgage-backed securities | | 139,931 | | 10.0 | | | | 150,883 | | 9.6 | | |
Other asset-backed securities | | 68,731 | | 4.9 | | | | 83,596 | | 5.3 | | |
Corporate and other securities | | 551,253 | | 39.3 | | | | 625,710 | | 39.8 | | |
Subtotal, fixed maturity securities | | | 1,050,155 | | 74.9 | | | | 1,218,279 | | 77.5 | |
Short term investments | | | - | | - | | | | - | | - | |
Equity securities (2) | | 240,155 | | 17.1 | | | | 264,945 | | 16.9 | | |
Other invested assets (3) | | 112,850 | | 8.0 | | | | 87,911 | | 5.6 | | |
| ��� | $ | 1,403,160 | | 100.0 | % | | $ | 1,571,135 | | 100.0 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of December 31, | ||||||||||
|
| 2017 |
| 2016 | ||||||||
|
| Estimated |
| % of |
|
| Estimated |
| % of | |||
|
| Fair Value |
| Portfolio |
|
| Fair Value |
| Portfolio | |||
U.S. Treasury Securities | $ | 1,791 |
| 0.1 | % |
| $ | 302 |
| 0.0 | % | |
Obligations of states and political subdivisions |
| 403,084 |
| 30.8 |
|
|
| 390,433 |
| 30.5 |
| |
Residential mortgage-backed securities (1) |
| 222,766 |
| 17.0 |
|
|
| 252,631 |
| 19.7 |
| |
Commercial mortgage-backed securities |
| 39,369 |
| 3.0 |
|
|
| 35,454 |
| 2.8 |
| |
Other asset-backed securities |
| 72,613 |
| 5.6 |
|
|
| 70,410 |
| 5.5 |
| |
Corporate and other securities |
| 432,403 |
| 33.1 |
|
|
| 405,039 |
| 31.6 |
| |
| Subtotal, fixed maturity securities |
| 1,172,026 |
| 89.6 |
|
|
| 1,154,269 |
| 90.1 |
|
Equity securities (2) |
| 111,867 |
| 8.6 |
|
|
| 105,095 |
| 8.2 |
| |
Other invested assets (3) |
| 23,162 |
| 1.8 |
|
|
| 21,142 |
| 1.7 |
| |
|
| $ | 1,307,055 |
| 100.0 | % |
| $ | 1,280,506 |
| 100.0 | % |
(1) Residential mortgage-backed securities consists primarily of obligations of U.S. Government agencies including collateralized mortgage obligations and mortgage-backed securities guaranteed and/or insured by the following issuers: Government National Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage Association (FNMA) and the Federal Home Loan Bank (FHLB).
(2) Equity securities include common stock, preferred stock, mutual funds and interests in mutual funds held to fund the Company's executive deferred compensation plan.
(3) Other invested assets are accounted for under the equity method which approximates fair value.
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The principal risks inherent in holding mortgage-backed securities and other pass-through securities are prepayment and extension risks, which affect the timing of when cash flows will be received. When interest rates decline, mortgages underlying mortgage-backed securities tend to be prepaid more rapidly than anticipated, causing early repayments. When interest rates rise, the underlying mortgages tend to be prepaid at a slower rate than anticipated, causing the principal repayments to be extended. Although early prepayments may result in acceleration of income from recognition of any unamortized discount, the proceeds typically arecould be reinvested at a lower current yield, resulting in a net reduction of future investment income. In addition, in the current market environment, such investments can also contain liquidity risks.
The Company invests in bank loans which are primarily investments in senior secured floating rate loans that banks have made to corporations. The loans are generally priced at an interest rate spread over the floating rate feature; this asset class provides protection against rising interest rates. However, this asset class is subject to default risk since these investments are typically below investment grade.
Equity risk is the risk that we will incur economic losses due to adverse changes in equity prices. Our exposure to changes in equity prices results from our holdings of common stock, preferred stock, mutual funds and interests in mutual funds held to fund the executive deferred compensation plan. We continuously evaluate market conditions and we expect in the future to purchase additional equity securities. We principally manage equity price risk through industry and issuer diversification and asset allocation techniques.
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The following table reflects our investment results for each year inof the three-year period ended December 31, 2017.2022, 2021 and 2020.
| | | | | | | | | | | |
| Years Ended December 31, | ||||||||||
| 2022 | | 2021 | | 2020 | ||||||
Average cash and invested securities (at cost) | $ | 1,462,761 | | | $ | 1,466,133 | | | $ | 1,401,881 | |
Net investment income (1) | $ | 46,725 | | | $ | 44,135 | | | $ | 41,045 | |
Net effective yield (2) | | 3.2 | % | | | 3.0 | % | | | 2.9 | % |
|
|
|
|
|
|
|
|
|
|
|
|
| Years Ended December 31, | ||||||||||
| 2017 |
| 2016 |
| 2015 | ||||||
Average cash and invested securities (at cost) | $ | 1,268,728 |
|
| $ | 1,231,358 |
|
| $ | 1,213,718 |
|
Net investment income (1) | $ | 38,758 |
|
| $ | 38,413 |
|
| $ | 40,534 |
|
Net effective yield (2) |
| 3.1 | % |
|
| 3.1 | % |
|
| 3.3 | % |
(1) After investment expenses, excluding realized investment gains or losses.
(2) Net investment income for the period divided by average invested securities and cash for the same period.
As of December 31, 2017,2022, our portfolio of fixed maturity investments was comprised principally of investment grade corporate fixed maturity securities, U.S. government and agency securities, and asset-backed securities. The portion of our non-investment grade portfolio of fixed maturity investments is primarily comprised of variable rate secured, senior bank loans and high yield bonds.
The composition of our fixed income security portfolio by Moody's rating is presented in the following table.
| | | | | | | | | | | | |
| | As of December 31, | | |||||||||
| | | 2022 | | | | 2021 | | ||||
|
| Estimated |
|
| | |
| Estimated | | |
| |
| | Fair Value | | Percent | | |
| Fair Value | | Percent | | |
U.S. Treasury securities and obligations of U.S. Government agencies |
| $ | 234,152 |
| 22.3 | % | | $ | 242,911 | | 19.9 | % |
Aaa/Aa | | | 237,191 |
| 22.6 | | | | 276,059 | | 22.7 |
|
A | | | 201,943 |
| 19.2 | | | | 279,187 | | 22.9 |
|
Baa | | | 202,763 |
| 19.3 | | | | 231,267 | | 19.0 |
|
Ba | | | 61,619 |
| 5.9 | | | | 60,822 | | 5.0 |
|
B | | | 93,633 |
| 8.9 | | | | 103,086 | | 8.5 |
|
Caa/Ca | | | 4,489 |
| 0.4 | | | | 4,284 | | 0.4 |
|
Not rated | | | 14,365 |
| 1.4 | | | | 20,663 | | 1.6 | |
Total |
| $ | 1,050,155 |
| 100.0 | % | | $ | 1,218,279 | | 100.0 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of December 31, |
| |||||||||
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|
| 2017 |
|
|
| 2016 |
| ||||
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| Estimated |
|
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| Estimated |
|
|
| |
|
| Fair Value |
| Percent |
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| Fair Value |
| Percent |
| |
U.S. Treasury securities and obligations of U.S. Government agencies |
| $ | 222,766 |
| 19.0 | % |
| $ | 252,989 |
| 22.0 | % |
Aaa/Aa |
|
| 411,794 |
| 35.1 |
|
|
| 390,432 |
| 33.8 |
|
A |
|
| 239,015 |
| 20.4 |
|
|
| 237,787 |
| 20.6 |
|
Baa |
|
| 142,176 |
| 12.1 |
|
|
| 124,340 |
| 10.8 |
|
Ba |
|
| 51,205 |
| 4.4 |
|
|
| 40,667 |
| 3.5 |
|
B |
|
| 75,673 |
| 6.5 |
|
|
| 68,449 |
| 5.9 |
|
Caa/Ca |
|
| 7,087 |
| 0.6 |
|
|
| 11,072 |
| 1.0 |
|
C |
|
| - |
| - |
|
|
| 416 |
| - |
|
D |
|
| 248 |
| - |
|
|
| 355 |
| - |
|
Not rated |
|
| 22,062 |
| 1.9 |
|
|
| 27,762 |
| 2.4 |
|
Total |
| $ | 1,172,026 |
| 100.0 | % |
| $ | 1,154,269 |
| 100.0 | % |
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Ratings are generally assigned upon the issuance of the securities and are subject to revision on the basis of ongoing evaluations. Ratings in the table are as of the date indicated.
Moody's rating system utilizes nine symbols to indicate the relative investment quality of a rated bond. “Aaa” rated bonds are judged to be of the best quality and are considered to carry the smallest degree of investment risk. “Aa” rated bonds are also judged to be of high quality by all standards. Together with “Aaa” bonds, these bonds comprise what are generally known as high grade bonds. Bonds rated “A” possess many favorable investment attributes and are considered to be upper medium grade obligations. “Baa” rated bonds are considered as medium grade obligations; they are neither highly protected nor poorly secured. Bonds rated “Ba” or lower (those rated “B”, “Caa”, “C” and “D”) are considered to be too speculative to be of investment quality.
The Securities Valuation Office of the National Association of Insurance Commissioners (the "SVO") evaluates all public and private bonds purchased as investments by insurance companies. The SVO assigns one of six investment categories to each security it reviews. Category 1 is the highest quality rating and Category 6 is the lowest. Categories 1 and 2 are the equivalent of investment grade debt as defined by rating agencies such as Standard & Poor's Ratings Services and Moody's, while Categories 3-6 are the equivalent of below investment grade securities. SVO ratings are reviewed at least annually. At December 31, 2017, 76.0%2022, 65.5% of our available for sale fixed maturity investments were rated Category 1 and 10.8%18.3% were rated Category 2, the two highest ratings assigned by the SVO.
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The following table indicates the composition of our fixed income security portfolio (at carrying value) by time to maturity as of December 31, 2017.2022.
| | | | | | | |
| | As of December 31, 2022 | | ||||
|
| Estimated |
| | | ||
| | Fair Value | | Percent | | ||
Due in one year or less | | $ | 4,665 | | | 0.4 | % |
Due after one year through five years | |
| 269,852 | |
| 25.7 | |
Due after five years through ten years | |
| 296,368 | |
| 28.2 | |
Due after ten years through twenty years | |
| 34,623 | |
| 3.3 | |
Due after twenty years | |
| 1,483 | |
| 0.1 | |
Asset-backed securities (1) | |
| 443,164 | |
| 42.3 | |
Totals | | $ | 1,050,155 | | | 100.0 | % |
|
|
|
|
|
|
|
|
|
| As of December 31, 2017 |
| ||||
|
| Estimated |
|
|
| ||
|
| Fair Value |
| Percent |
| ||
Due in one year or less |
| $ | 63,886 |
|
| 5.5 | % |
Due after one year through five years |
|
| 297,433 |
|
| 25.4 |
|
Due after five years through ten years |
|
| 246,193 |
|
| 21.0 |
|
Due after ten years through twenty years |
|
| 224,328 |
|
| 19.1 |
|
Due after twenty years |
|
| 5,440 |
|
| 0.5 |
|
Asset-backed securities (1) |
|
| 334,746 |
|
| 28.5 |
|
Totals |
| $ | 1,172,026 |
|
| 100.0 | % |
|
|
|
|
|
|
|
|
(1) Actual maturities of asset-backed securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Prepayment rates are influenced by a number of factors that cannot be predicted with certainty, including: the relative sensitivity of the underlying mortgages or other collateral to changes in interest rates; a variety of economic, geographic and other factors; and the repayment priority of the securities in the overall securitization structures.
A.M. Best, which rates insurance companies based on factors of concern to policyholders, currently assigns Safety Insurancethe Company an "A (Excellent)" rating. Our "A" rating was reaffirmed by A.M. Best on May 10, 2017.26, 2022. Such rating is the third highest rating of 13 ratings that A.M. Best assigns to solvent insurance companies, which currently range from "A++ (Superior)" to "D (Very Vulnerable)(Poor)." Publications of A.M. Best indicate that the "A" rating is assigned to those companies that in A.M. Best's opinion have a strongan excellent ability to meet their ongoing obligations to policyholders over a long period of time. In evaluating a company's financial and operating performance, A.M. Best reviews the Company's profitability, leverage and liquidity, as well as its book of business, the adequacy and soundness of its reinsurance, the quality and estimated fair value of its assets, the adequacy of its loss reserves, the adequacy of its surplus, its capital structure, the experience and competence of its management and its market presence. A.M. Best's ratings reflect its opinion of an insurance company's financial strength, operating performance and ability to meet its obligations to policyholders and are not evaluations directed to purchasers of an insurance company's securities.
In assigning Safety Insurance'sthe Company’s rating, A.M. Best recognized its solid risk-adjusted capitalization, conservative operating strategy, and long-standing agency relationships. A.M. Best also noted among our positive attributes our favorable investment leverage, our disciplined underwriting approach, and our expertise in the closely managed Massachusetts automobile insurance market, where rates, until recently, were historically established by the Commissioner.market. A.M. Best cited other factors that partially offset these positive attributes, including our concentration of business in the Massachusetts private passenger automobile market which exposes our business to regulatory actions.
Supervision and Regulation
Introduction. Our principal operations are conducted through the Insurance Subsidiaries which are subject to comprehensive regulation by state insurance departments, primarily through our domestic regulator, the Massachusetts Division, of Insurance,
19
which the Commissioner is the senior official. The Commissioner is appointed by the Governor. We are subject to the authority of the Commissioner in many areas of our business under Massachusetts law, including:
| our licenses to transact insurance; |
| the rates and policy forms we may use; |
| our financial condition including the adequacy of our reserves and provisions for unearned premium; |
| the solvency standards that we must maintain; |
18
| the type and size of investments we may make; |
| the prescribed or permitted statutory accounting practices we must use; and |
| the nature of the transactions we may engage in with our affiliates. |
In addition, the Commissioner periodically conducts financial and market conduct examinations of all licensees domiciled in Massachusetts. Our most recent financial and market conduct examinations werecondition examination was for the five-year period ending December 31, 2013.2018. The Division had no material findings as a result of these examinations.this examination.
We are also required to be licensed by the insurance department in each state in which we do business, as well as to comply with the various laws and regulations of those jurisdictions, including those governing our use of rates and policy forms in those states.
Insurance Holding Company Regulation.Our principal operating subsidiaries are insurance companies, and therefore we are subject to certain laws in Massachusetts regulating insurance holding company systems. These laws require that we file a registration statement with the Commissioner that discloses the identity, financial condition, capital structure and ownership of each entity within our corporate structure and any transactions among the members of our holding company system. In some instances, we must provide prior notice to the Commissioner for material transactions between our insurance company subsidiaries and other affiliates in our holding company system. These holding company statutes also require, among other things, prior approval of the payment of extraordinary dividends or distributions and any acquisition of a domestic insurer and that we file an annual Enterprise Risk Management report with the Commissioner.
Insurance Regulation Concerning Dividends.We rely on dividends from the Insurance Subsidiaries for our cash requirements. The insurance holding company law of Massachusetts requires notice to the Commissioner of any dividend to the shareholders of an insurance company. The Insurance Subsidiaries may not make an "extraordinary dividend" until thirty days after the Commissioner has received notice of the intended dividend and has not objected in such time. As historically administered by the Commissioner, this provision requires the prior approval by the Commissioner of an extraordinary dividend. An extraordinary dividend is defined as any dividend or distribution that, together with other distributions made within the preceding twelve months exceeds the greater of 10.0% of the insurer's surplus as of the preceding December 31, or the insurer's net income for the twelve-month period ending the preceding December 31, in each case determined in accordance with statutory accounting practices. Under Massachusetts law, an insurer may pay cash dividends only from its unassigned funds, also known as its earned surplus, and the insurer's remaining surplus must be both reasonable in relation to its outstanding liabilities and adequate to its financial needs. At December 31, 2017,2022, the statutory surplus of Safety Insurance was $617,577$782,200 and its net income for 20182022 was $57,982.$66,197. A maximum of $61,758$78,220 will be available during 20182022 for such dividends without prior approval of the Commissioner.
Acquisition of Control of a Massachusetts Domiciled Insurance Company.Massachusetts law requires advance approval by the Commissioner of any change in control of an insurance company that is domiciled in Massachusetts. That law presumes that control exists where any person, directly or indirectly, owns, controls, holds the power to vote or holds proxies representing 10.0% or more of our outstanding voting stock. Even persons who do not acquire beneficial ownership of more than 10.0% of the outstanding shares of our common stock may be deemed to have acquired control if the Commissioner determines that control exists in fact. Any purchaser of shares of common stock representing 10.0% or more of the voting power of our capital stock will be presumed to have acquired control of the Insurance Subsidiaries
20
unless, following application by that purchaser the Commissioner determines that the acquisition does not constitute a change of control or is otherwise not subject to regulatory review. These requirements may deter, delay or prevent transactions affecting the control of or the ownership of our common stock, including transactions that could be advantageous to our stockholders.
Protection Against Insurer Insolvency.Massachusetts law requires that insurers licensed to do business in Massachusetts participate in the Massachusetts Insurers Insolvency Fund ("Insolvency Fund"). The Insolvency Fund must pay any claim up to $300 of a policyholder of an insolvent insurer if the claim existed prior to the declaration of insolvency or arose within sixty days after the declaration of insolvency. Members of the Insolvency Fund are assessed the amount the Insolvency Fund deems necessary to pay its obligations and expenses in connection with handling covered claims. Subject to certain exceptions, assessments are made in the proportion that each member's net written
19
premiums for the prior calendar year for all property and casualty lines bore to the corresponding net written premiums for Insolvency Fund members for the same period. As a matter of Massachusetts law, insurance rates and premiums include amounts to recoup any amounts paid by insurers for the costs of the Insolvency Fund. By statute, no insurer in Massachusetts may be assessed in any year an amount greater than two percent of that insurer's direct written premium for the calendar year prior to the assessment. We account for allocations from the Insolvency Fund as underwriting expenses. CAR also assesses its members as a result of insurer insolvencies. Because CAR is not able to recover an insolvent company's share of the net CAR losses from the Insolvency Fund, CAR must increase each of its member's shares of the deficit in order to compensate for the insolvent carrier's inability to pay its deficit assessment. It is anticipated that there will be future assessments from time to time relating to various insolvencies.
The Insurance Regulatory Information System.The Insurance Regulatory Information System ("IRIS") was developed to help state insurance regulators identify companies that may require special financial attention. IRIS consists of a statistical phase and an analytical phase whereby financial examiners review annual statements and financial ratios. The statistical phase consists of 13 key financial ratios based on year-end data that are generated annually from the database of the National Association of Insurance Commissioners ("NAIC"). Each ratio has an established "usual range" of results. These ratios assist state insurance departments in executing their statutory mandate to oversee the financial condition of insurance companies.
A ratio result falling outside the usual range of IRIS ratios is not considered a failing result; rather, unusual values are viewed as part of the regulatory early monitoring system. Furthermore, in some years, it may not be unusual for financially sound companies to have several ratios with results outside the usual ranges. Generally, an insurance company will become subject to regulatory scrutiny if it falls outside the usual ranges of four or more of the ratios. In 2017, 2016,2022, 2021, and 20152020 all our ratios for all our Insurance Subsidiaries were within the normal range.
Risk-Based Capital Requirements.The NAIC has adopted a formula and model law to implement risk-based capital requirements for most property and casualty insurance companies, which are designed to determine minimum capital requirements and to raise the level of protection that statutory surplus provides for policyholder obligations. The risk-based capital formula for property and casualty insurance companies measures three major areas of risk facing property and casualty insurers:
| underwriting, which encompasses the risk of adverse loss developments and inadequate pricing; |
| declines in asset values arising from market and/or credit risk; and |
| off-balance sheet risk arising from adverse experience from non-controlled assets, guarantees for affiliates or other contingent liabilities and reserve and premium growth. |
Under Massachusetts law, insurers having less total adjusted capital than that required by the risk-based capital calculation will be subject to varying degrees of regulatory action, depending on the level of capital inadequacy.
The risk-based capital law provides for four levels of regulatory action. The extent of regulatory intervention and action increases as the level of total adjusted capital to risk-based capital falls. The first level, the company action
21
level, as defined by the NAIC, requires an insurer to submit a plan of corrective actions to the Commissioner if total adjusted capital falls below 200% of the risk-based capital amount. The regulatory action level, as defined by the NAIC requires an insurer to submit a plan containing corrective actions and requires the Commissioner to perform an examination or other analysis and issue a corrective order if total adjusted capital falls below 150.0% of the risk-based capital amount. The authorized control level, as defined by the NAIC, authorizes the Commissioner to take whatever regulatory actions he or she considers necessary to protect the best interest of the policyholders and creditors of the insurer which may include the actions necessary to cause the insurer to be placed under regulatory control, i.e., rehabilitation or liquidation, if total adjusted capital falls below 100.0% of the risk-based capital amount. The fourth action level is the mandatory control level, as defined by the NAIC, which requires the Commissioner to place the insurer under regulatory control if total adjusted capital falls below 70.0% of the risk-based capital amount.
20
The formulas have not been designed to differentiate among adequately capitalized companies that operate with higher levels of capital. Therefore, it is inappropriate and ineffective to use the formulas to rate or to rank these companies. At December 31, 2017,2022, our Insurance Subsidiaries had total adjusted capital in excess of amounts requiring company or regulatory action at any prescribed risk-based capital action level.
Own Risk Solvency Assessment.On January 11, 2017, the Division adopted the National Association of Insurance Commissioners’ Own Risk Solvency Assessment (“ORSA”) Act requiring the Company to file its assessment on an annual basis. ORSA is an internal process undertaken by an insurer or insurance group to assess the adequacy of its risk management and current and prospective solvency positions under normal and severe stress scenarios. We have completed this filing for the 20172021 period.
Executive Officers and Directors
The table below sets forth certain information concerning our directors and executive officers as of the date of this annual report.
|
|
|
|
| ||||
|
|
|
| Years | ||||
|
|
|
| Employed | ||||
| | | | | ||||
| | | | Years | ||||
| | | | Employed | ||||
Name | Age (1) | Position |
| by Safety | Age (1) | Position | | by Safety |
George M. Murphy | 51 | President, Chief Executive Officer |
| 29 | 56 | President, Chief Executive Officer | | 34 |
William J. Begley, Jr. | 63 | Vice President, Chief Financial Officer and Secretary |
| 32 | ||||
Christopher T. Whitford | 40 | Vice President, Chief Financial Officer and Secretary | | 10 | ||||
James D. Berry | 58 | Vice President - Underwriting |
| 36 | 63 | Vice President - Underwriting | | 40 |
John P. Drago | 51 | Vice President - Marketing |
| 23 | 56 | Vice President - Marketing | | 28 |
David E. Krupa | 57 | Vice President - Property Claims |
| 35 | ||||
Ann M. McKeown | 51 | Vice President - Insurance Operations |
| 28 | 55 | Vice President - Insurance Operations | | 33 |
Paul J. Narciso | 54 | Vice President - Casualty Claims |
| 27 | 59 | Vice President - Claims | | 32 |
Stephen A. Varga | 50 | Vice President - Management Information Systems |
| 25 | 55 | Vice President - Management Information Systems | | 30 |
Glenn R. Hiltpold | 52 | Vice President - Actuarial Services | | 23 | ||||
David F. Brussard | 66 | Chairman of the Board, Director |
| - | 71 | Chairman of the Board, Director | | - |
Frederic H. Lindeberg | 77 | Director |
|
| ||||
Peter J. Manning | 79 | Director |
| - | 84 | Director | | - |
David K. McKown | 80 | Director |
| - | ||||
Thalia M. Meehan | 56 | Director |
| - | 61 | Lead Independent Director | | - |
Mary C. Moran | 67 | Director | | - | ||||
John D. Farina | 59 | Director | | - | ||||
Deborah E. Gray | 59 | Director | | - | ||||
___________________ |
|
|
|
| | | | |
(1) As of February 16, 2018 |
|
|
|
| ||||
|
|
|
|
| ||||
(1) As of February 16, 2023 | | | | | ||||
George M. Murphy, CPCU,was appointed President and Chief Executive Officer of the Company effective April 1, 2016. He previously was the Vice President of Marketing since October 1, 2005. Mr. Murphy was appointed to the Board of Directors and to the Investment Committee in February 2016. Mr. Murphy has been employed by the Insurance Subsidiaries for over 2934 years. Mr. Murphy is also on the Board of Trustees of the Insurance Library Association of Boston.
William J. Begley, Jr.Christopher T. Whitford, was appointed Chief Financial Officer, Vice President and Secretary of the Company on March 4, 2002. Since January 1999,2, 2020. Mr. Begley has been the Chief Financial Officer and Treasurer of the Insurance Subsidiaries. Previously, Mr. Begley served as Assistant Controller of the Insurance Subsidiaries from 1985 to 1987, as Controller from 1987 to 1990 and as Assistant Vice President/Controller from 1990 to 1999. Mr. BegleyWhitford, a Certified Public Accountant in Massachusetts, has been employed by the Insurance Subsidiaries for over 32 years.10 years, previously serving as the Company’s Controller since 2012, and began his career at PricewaterhouseCoopers in 2005. Mr. Begley alsoWhitford serves on the Audit Committee and Investment Committee of Guaranty Fund Management Services and is a member ofalso serves on the Board of DirectorsAudit Committee of the Massachusetts Insurers Insolvency Fund.Property Insurance Underwriting Association.
22
James D. Berry, CPCU, was appointed Vice President of Underwriting of the Company in July 2015, and was named as Secretary of the Insurance Subsidiaries at that time. Prior to that, he served as the Vice President of Insurance Operations since October 1, 2005. Mr. Berry has been employed by the Insurance Subsidiaries for over 3640 years and has directed the Company's Massachusetts Private Passenger line of business since 2001. Mr. Berry is Vicethe Chairman of the Board of Directors of the Massachusetts Property Insurance Underwriting Association (FAIR Plan).FAIR Plan and previously served as the Chairman of that organizations Executive Committee. He has served on several committees of Commonwealth Auto Reinsurers (“CAR”)CAR including Market Review and Defaulted Brokers. Mr. Berry has represented SafetyBrokers and also served on the DXC TechnologyComputer Sciences Corporation Series II and Exceed advisory councils. He also serves onas the
21
Executive Committee Treasurer of the In Control Family Foundation, is a member of their Executive Committee and is the Chairman of that organizations Financeorganization’s Business Development Committee.
John P. Drago was appointed Vice President of Marketing on February 1, 2016. Mr. Drago has been employed by the Insurance Subsidiaries for over 2328 years and most recently served as Director of Marketing.
David E. Krupa, CPCU, was appointed Vice President of Property Claims of the Company on March 4, 2002. Mr. Krupa has served as Vice President of Claims of the Insurance Subsidiaries since July 1990 and has been employed by the Insurance Subsidiaries for over 35 years. Mr. Krupa was first employed by the Company in 1982 and held a series of management positions in the Claims Department before being appointed Vice President in 1990. Mr. Krupa has served on the Auto Damage Appraisers Licensing Board of Massachusetts and on several claims committees both at the Automobile Insurers Bureau of Massachusetts and CAR.
Ann M. McKeown was appointed Vice President of Insurance Operations of the Company on July 1, 2015. Ms. McKeown has been employed by the Insurance Subsidiaries for over 2833 years wherein she has held management positions in the Underwriting, Information Technology, and Insurance Operations departments. Ms. McKeown has served on the MAIP Steering and Operations Committees of CAR.
Paul J. Narciso was appointed Vice President of Casualty Claims of the Company on August 5, 2013. Mr. Narciso has held various adjusting and claims management positions with the Company since 1990. Mr. Narciso has 2736 years of claim experience having worked at two national carriers prior to joining Safety. He currently serveshas previously served on the Governing Board of the Massachusetts Insurance Fraud Bureau.Bureau and the Claims Subcommittee at Commonwealth Automobile Reinsurers.
Stephen A. Varga was appointed Vice President of Management Information Systems of the Company on August 6, 2014. Mr. Varga has held various information technology positions with the Company since 1992 and most recently served as Senior Director of MIS.
Glenn R. Hiltpold was appointed Vice President of Actuarial Services of the Company on March 1, 2021. Mr. Hiltpold, a Fellow of the Casualty Actuarial Society, has held the Director of Actuarial Services position with the Company since 2004 and has been an employee of the Insurance Subsidiaries for 23 years.
David F. Brussardwas appointed Chairman of the Board in March 2004 and has served as a director of the Company since October 2001. Mr. Brussard served as President and Chief Executive Officer of the Company from June 2001 until March 31, 2016. Also, from January 1999 to March 31, 2016, Mr. Brussard served as the CEO and President of the Insurance Subsidiaries. Previously, Mr. Brussard served as Executive Vice President of the Insurance Subsidiaries from 1985 to 1999 and as Chief Financial Officer and Treasurer of the Insurance Subsidiaries from 1979 to 1999. Mr. Brussard was also appointed Chairman of the Investment Committee on February 22, 2017.
Frederic H. Lindeberg has served as a director of the Company since August 2004. Mr. Lindeberg has had a consulting practice providing taxation, management and investment counsel since 1991, focusing on finance, real estate, manufacturing and retail industries. Mr. Lindeberg retired in 1991 as Partner-In-Charge of various KPMG tax offices, after 24 years of service where he provided both accounting and tax counsel to various clients. Mr. Lindeberg is an attorney and certified public accountant. Mr. Lindeberg was formerly a director of Provident Senior Living Trust (PSLT) and TAL International (TAL) and formerly an adjunct professor at Penn State Graduate School of Business.
Peter J. Manninghas served as a director of the Company since September 2003. Mr. Manning retired in 2003, as Vice Chairman Strategic Business Development of FleetBoston Financial, after 32 years with FleetBoston Financial Corporation (formerly BankBoston) where he also held the positions of Comptroller and Executive Vice President and Chief Financial Officer. Mr. Manning started his career with Coopers & Lybrand in 1962 prior to his 1972 employment with BankBoston. He currently is a former director of the Blue Hills Bank.
David K. McKown has served asBank and a former director of Thermo Fisher Scientific and the Company since November 2002.Lahey Clinic. Mr. McKown has been a Senior Advisor to Eaton Vance Management since 2000, focusing on business origination in real estateManning qualifies as an “Audit Committee Financial Expert” as defined by the U.S. Securities and asset-based loans.Exchange Commission rules. Mr. McKown retired in March 2000 having servedManning serves as Chairperson of the Audit Committee and serves as a Group Executive with BankBoston since 1993, where he focused on acquisitionsmember of the Compensation and high-yield bank debt financings. Mr. McKown has been in the banking industry for 52 years, worked for BankBoston for over 32 yearsNominating and had previously been the head of BankBoston's real estate department, corporate finance department, and a managing director of BankBoston's private equity unit. Mr. McKown is currently a
22
director of Global Partners L.P., and various privately held companies.Governance Committees.
Thalia M. Meehan was appointed Director of the Company on July 3, 2017.2017 and Lead Independent Director on January 11, 2022. Ms. Meehan has also been appointed to serve as a member of the Investment Committee and the Nominating and Governance Committee, as well as Chairperson of the Compensation Committee of the Board. Ms. Meehan, a Chartered Financial Analyst, has over 30 years of experience in the investment sector. Ms. Meehan retired from Putnam Investments in 2016 with 27 years of experience and most recently served as a Team Leader and Portfolio Manager at Putnam Investments. Ms. Meehan currently serves on the Board of the Boston Women in Public Finance and was previouslyCambridge Bancorp where she is a member of the Trust and Risk Committees. Ms. Meehan serves as Chairperson of the Nominating Committee and as a
23
member of the Steering Committee of the Municipal Securities Rulemaking Board and the Advisory Committee of the Board of Boston Women in Public Finance.
Mary C. Moran was appointed Director of the Company on March 27, 2020. Ms. Moran has over 40 years of financial experience in both private industry as well as consulting. Ms. Moran began her career at KPMG, previously Peat Marwick, where she became a Senior Manager before serving as Senior Vice President of Finance and Administration for Boston Sand and Gravel Company from 1990 to 2001. Since 2002 she has served as CEO of MCM Financial Consulting, focusing on projects within in the banking, construction, higher education, manufacturing, not-for-profit and professional services industries. Ms. Moran is currently a director of Care Dimensions where she serves on the finance and audit committee and is a former director and audit committee member of Danvers Bankcorp, the College of the Holy Cross and Catholic Memorial School. Ms. Moran graduated from Northeastern University with a M.B.A. and MS in Accounting and from the College of the Holy Cross with a degree in Economics. Ms. Moran qualifies as an “Audit Committee Financial Expert” as defined by the U.S. Securities and Exchange Commission rules. Ms. Moran serves as Chairperson of the Nominating and Governance Committee and serves as a member of the Audit and Compensation Committees.
John D. Farinawas appointed Director of the Company on March 24, 2022.Mr. Farina recently retired from PricewaterhouseCoopers (“PwC”) as Northeast Managing Partner and as a member of PwC’s Global Board of Directors, where he was a member of the Risk & Quality and Operations Committees. He has 35 years of experience advising both domestic and multinational Fortune 500 companies on financial accounting, regulatory, and tax matters, with a deep expertise in the insurance industry. Mr. Farina also led PwC’s US Insurance Tax practice and has deep insurance industry expertise. During his time at PwC, Mr. Farina held a variety of senior leadership roles including Managing Partner of the Northeast Region, where he was responsible for approximately 3,800 partners and staff in five offices. In this role, he oversaw strategic planning, operations, finance, risk management, human capital, and marketing functions. Mr. Farina was elected by his fellow partners for two terms on both PwC’s US and Global Boards, providing 10 years of governance oversight to the firm. After retiring from PwC in 2021, Mr. Farina was elected to join the National Committee of St. Jude Children's Research Hospital in Memphis, Tennessee, where he serves as the Vice Chair of the Audit & Compliance Committee. Mr. Farina has also served on several non-profit boards, including the Greater Boston Chamber of Commerce. Mr. Farina received his BBA in Accounting from Evangel University and is a CPA in Massachusetts and Texas. Mr. Farina qualifies as an “Audit Committee Financial Expert” as defined by the U.S. SEC rules.
Deborah E. Graywas appointed Director of the Company on March 24, 2022. Ms. Gray has also been appointed to serve as a member of the Nominating and Governance Committee and the Compensation Committee. She joins the Board with over 30 years of experience as a corporate attorney and General Counsel for both publicly traded and private entities in a diverse range of industries, including high tech, ed tech, Software-as-a-Service (SaaS), professional services and life sciences. Her legal and business expertise with high-growth companies, ranging from start-ups to publicly traded multibillion-dollar corporations, are beneficial to Safety, particularly in relation to risk management, compliance, data privacy and security, and corporate governance matters. Ms. Gray has served in various General Counsel roles over her 30-year career, including most recently providing her expertise as an outside General Counsel to a variety of companies. She is also currently Vice President and General Counsel of The Achievement Network, a private, non-profit, national education and technology organization where she leads all day-to-day legal, data privacy and security, and compliance initiatives. Prior to this role, Ms. Gray served as Vice President, General Counsel and Secretary at Acquia, Inc., a SaaS company where she led the creation and build out of its global legal, data security and corporate compliance functions including M&A, commercial contracts, licensing, real estate, employment, corporate and board of directors governance. Previously she held senior positions with Charles River Laboratories, International, Sapient Corporation and Harcourt General. Ms. Gray began her legal career at WilmerHale in Boston where she specialized in mergers and acquisitions, public offerings and SEC compliance matters. She also currently serves on the Board of Directors for The Home for Little Wanderers, serving as Secretary and a member of the Executive Committee, is a Trustee Emerita of Colby College, and a former Overseer of the Boston Symphony Orchestra.
The Company has adopted a Code of Business Conduct and Ethics (“Code of Ethics”) that applies to all employees, including executive officers, and to directors. The Code of Ethics is available on the About Us, Investor Advisory Group. Information page of the Company’s website at www.safetyinsurance.com. If the Company ever were to amend or waive any provision of its Code of Ethics that applies to the Company’s principal executive officer, principal financial officer,
24
principal accounting officer or any person performing similar functions, the Company intends to satisfy its disclosure obligations, if any, with respect to any such waiver or amendment by posting such information on its website set forth above rather than by filing a Current Report on Form 8-K.
An investment in our common stock involves a number of risks. Any of the risks described below could result in a significant or material adverse effect on our results of operations or financial condition, and a corresponding decline in the market price of our common stock.
We operate in a heavily regulated industry and are subject to regulations and laws in various jurisdictions:
We are subject to comprehensive government regulation and our ability to earn profits may be restricted by these regulations.
General Regulation. We are subject to regulation by the state insurance department of each state in which we do business. In each jurisdiction, we must comply with various laws and regulations, including those involving:
| ● | approval or filing of premium rates and policy forms; |
| ● | limitation of the right to cancel or non-renew policies in some lines; |
| ● | requirements to participate in residual markets; |
| ● | licensing of insurers and agents; and |
| ● | regulation of the right to withdraw from markets or terminate involvement with agencies; |
We also are subject to enhanced regulation by our domestic regulator, the Division, from which we must obtain prior approval for certain corporate actions. Among other things, we must comply with laws and regulations governing:
| ● | transactions between an insurance company and any of its affiliates; |
| ● | the payment of dividends; |
| ● | the acquisition of an insurance company or of any company controlling an insurance company; |
| ● | solvency standards; |
| ● | minimum amounts of capital and surplus which must be maintained; |
| ● | limitations on types and amounts of investments; |
| ● | restrictions on the size of risks which may be insured by a single company; |
| ● | deposits of securities for the benefit of policyholders; and |
| ● | reporting with respect to financial condition. |
In addition, insurance department examiners from Massachusetts perform periodic financial and market conduct examinations of insurance companies. Such regulation is generally intended for the protection of policyholders rather than security holders.
Massachusetts, New Hampshire and Maine require that all licensed property and casualty insurers bear a portion of the losses suffered by some insureds as a result of impaired or insolvent insurance companies by participating in each
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state’s insolvency fund. Members of the state’s insolvency fund are assessed a proportionate share of the obligations and expenses of the fund in connection with an insolvent insurer. These assessments are made by the fund to cover the cost of paying eligible claims of policyholders of these insolvent insurers. Similarly, assessments are made by each state’s commercial automobile insurance residual market mechanism to recover the shares of net losses that would have been assessed to the insolvent companies but for their insolvencies. In addition, Massachusetts has established an underwriting association in order to ensure that property insurance is available for owners of high risk property who are not able to obtain insurance from private insurers. The losses of this underwriting association, the Massachusetts Property Insurance Underwriting Association, are shared by all insurers that write property and casualty insurance in Massachusetts. We are assessed from time to time to pay these losses. The effect of these assessments could reduce our profitability in any given period and limit our ability to grow our business.
Because we are primarilyunable to predict with certainty changes in the political, economic or regulatory environments of the states in which we operate in the future, there can be no assurance that existing insurance-related laws and regulations will not become more restrictive in the future or that new restrictive laws will not be enacted and, therefore, it is not possible to predict the potential effects of these laws and regulations on us.
There are anti-takeover provisions contained in our organizational documents and in laws of the State of Delaware and the Commonwealth of Massachusetts that could impede an attempt to replace or remove our management or prevent the sale of our company, which could diminish the value of our common stock.
Our certificate of incorporation, bylaws and the laws of Delaware contain provisions that may delay, deter or prevent a takeover attempt that shareholders might consider in their best interests. For example, our organizational documents provide for a classified board of directors with staggered terms, prevent shareholders from taking action by written consent, prevent shareholders from calling a special meeting of shareholders, provide for supermajority voting requirements to amend our certificate of incorporation and certain provisions of our bylaws and provide for the filling of vacancies on our board of directors by the vote of a majority of the directors then in office. These provisions will render the removal of the incumbent board of directors or management more difficult. In addition, these provisions may prevent shareholders from receiving the benefit of any premium over the market price of our common stock offered by a bidder in a potential takeover. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging takeover attempts in the future.
The Massachusetts insurance law prohibits any person from acquiring control of us, and thus indirect control of the Insurance Subsidiaries, without the prior approval of the Commissioner. That law presumes that control exists where any person, directly or indirectly, owns, controls, holds the power to vote or holds proxies representing 10.0% or more of our outstanding voting stock. Even persons who do not acquire beneficial ownership of more than 10.0% of the outstanding shares of our common stock may be deemed to have acquired such control if the Commissioner determines that such control exists in fact. Therefore, any person seeking to acquire a controlling interest in us would face regulatory obstacles which could delay, deter or prevent an acquisition that shareholders might consider in their best interests.
Section 203 of the General Corporation Law of Delaware, the jurisdiction in which the Company is organized, may affect the ability of an "interested stockholder" to engage in certain business combinations including mergers, consolidations or acquisitions of additional shares, for a period of three years following the time that the stockholder becomes an interested stockholder. An interested stockholder is defined to include persons owning directly or indirectly 15.0% or more of the outstanding voting stock of the corporation.
Our private passenger automobile business is concentrated in in New England:
With a concentration of private passenger automobile insurance, carrier, our business may be adversely affected by conditions in this industry.
Approximately 56.7%52.0% of our direct written premiums for the year ended December 31, 2017,2022 were generated from private passenger automobile insurance policies. As a result of our focus on that line of business, negative developments in the economic, competitive or regulatory conditions affecting the private passenger automobile insurance
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industry could have a material adverse effect on our results of operations and financial condition. In addition, these developments would have a disproportionate effect on us, compared to insurers which conduct operations in multiple business lines.
Because we write insurance principally in Massachusetts, our business may be adversely affected by conditions in Massachusetts, including the impact of additional competitors.
Almost all of our direct written premiums are currently generated in Massachusetts. Our revenues and profitability are therefore subject to prevailing regulatory, economic, demographic, competitive and other conditions in Massachusetts. Changes in any of these conditions could make it more costly or difficult for us to conduct our business. The Massachusetts market has seen an increased level of competition, particularly in the private passenger automobile insurance line, due to prior changes in regulatory conditions. To date, we have not had a significant decrease in our private passenger automobile insurance business. However, further competition and adverse results could include loss of market share, decreased revenue, and/or increased costs.
As writers of property insurance, our Insurance Subsidiaries are exposed to potential losses related to severe weather:
We have exposure to claims related to severe weather conditions, which may result in an increase in claims frequency and severity.
We are subject to claims arising out of severe weather conditions, such as rainstorms, snowstorms and icestorms, that may have a significant effect on our results of operations and financial condition. The incidence and severity of weather conditions are inherently unpredictable. There is generally an increase in claims frequency and severity under the private passenger automobile insurance we write when severe weather occurs because a higher incidence of vehicular accidents and other insured losses tend to occur as a result of severe weather conditions. In addition, we have exposure to an increase in claims frequency and severity under the homeowners and other property insurance we write because property damage may result from severe weather conditions.
Because some of our insureds live near the Massachusetts coastline, we also have a potential exposure to losses from hurricanes and major coastal storms such as Nor'easters. Although we purchase catastrophe reinsurance to limit our exposure to natural catastrophes, in the event of a major catastrophe resulting in property losses to us in excess of
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$665,000 $665,000 our losses would exceed the limits of this reinsurance in addition to losses from our co-participation retention of a portion of the risk up to $665,000.
Climate change and increasing climate change regulation may adversely impact our results of operations.
There are concerns that the increase in weather-related catastrophes and other losses incurred by the industry in recent years may be indicative of changing weather patterns. This change in weather patterns could lead to higher overall losses which we may not be able to recover, particularly in light of the current competitive environment, and higher reinsurance costs. Changes in climate conditions may also cause our underlying modeling data to not adequately reflect frequency and severity, limiting our ability to effectively evaluate and manage risks of catastrophes and severe weather events. Among other impacts, this could result in not charging enough premiums or not obtaining timely state approvals for rate increases to cover the risks we insure. Climate change could also have an impact on issuers of securities in which we invest, resulting in realized and unrealized losses in future periods which could have a material adverse impact on our results of operations and/or financial position.
There is uncertainty involvedWe are also subject to complex and changing laws and regulations relating to climate change which are difficult to predict and quantify and may have an adverse impact on our business. Changes in regulations relating to climate change or our own management decisions implemented as a result of assessing the impact of climate change on our business may result in an increase in the availability of reinsurance.
The Company reinsures a portion of its potential losses on the policies it issues to mitigate the volatility of the losses on its financial condition and results of operations. The availability and cost of reinsurance isdoing business.
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We are subject to economic and underwriting market conditions:
The impact of inflation and supply chain delays may increase loss severity.
Economic and market conditions which are outside of our control, such as inflation and supply chain issues, may adversely impact our underwriting profitability.
We operate in the Company’s control. From time to time, market conditions have limited,highly competitive property and in some cases, prevented insurers from obtaining the types and amounts of reinsurance that they consider adequate for their business needs. As a result, the Company may not be able to successfully purchase reinsurance and transfer a portion of the Company’s risk through reinsurance arrangements.casualty insurance industry:
If we are not able to attract and retain independent agents, it could adversely affect our business.
We market our insurance solely through independent agents. We must compete with other insurance carriers for the business of independent agents. Some of our competitors offer a larger variety of products, lower prices for insurance coverage or higher commissions. While we believe that the commissions and services we provide to our agents are competitive with other insurers, changes in commissions, services or products offered by our competitors could make it harder for us to attract and retain independent agents to sell our insurance products.
Established competitors with greater resources may make it difficult for us to market our products effectively and offer our products at a profit.
The property and casualty insurance business is highly competitive and many of our competitors have substantially greater financial and other resources than we do. We compete with both large national writers and smaller regional companies. Further, our competitors include other companies which, like us, serve the independent agency market, as well as companies which sell insurance directly to customers. Direct writers may have certain competitive advantages over agency writers, including increased name recognition, loyalty of the customer base to the insurer rather than to an independent agency and, potentially, lower cost structures. A material reduction in the amount of business independent agents sell would directly and negatively affect our profitability and our ability to compete with insurers that do not rely solely on the independent agency market to sell their products. Further, our Company and others compete on the basis of the commissions and other cash and non-cash incentives provided to agents. Although a number of national insurers that are much larger than we are do not currently compete in a material way in the Massachusetts personal auto market, if one or more of these companies decided to aggressively enter the market it could reduce our share of the Massachusetts market and thereby have a material adverse effect on us. These companies include some that would be able to sustain significant losses in order to acquire market share, as well as others which use distribution methods that compete with the independent agent channel. Progressive Corporation, GEICO and Allstate, large insurers that market directly to policyholders rather than through agents, along with other carriers have entered the Massachusetts private passenger automobile insurance market.
We may enter new markets and there can be no assurance that our diversification strategy will be effective.
Although we intend to concentrate on our core businesses in Massachusetts, New Hampshire, and Maine, we also may seek to take advantage of prudent opportunities to expand our core businesses into other states where we believe the independent agent distribution channel is strong. As a result of a number of factors, including the difficulties of finding appropriate expansion opportunities and the challenges of operating in an unfamiliar market, we may not be successful in this diversification. Additionally, in order to carry out any such strategy we would need to obtain the appropriate licenses from the insurance regulatory authority of any such state.
The success of our business is subject to operational risks:
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We may not be able to successfully alleviate risk through reinsurance arrangements which could cause us to reduce our premiums written in certain lines or could result in losses.
In order to reduce risk, to increase our underwriting capacity, and mitigate the volatility of losses on our financial condition and operations, we purchase reinsurance. The availability and the cost of reinsurance protection are subject to market conditions, which are outside of our control. As a result, we may not be able to successfully alleviate risk through these arrangements. For example, if reinsurance capacity for homeowner's risks were reduced as a result of terrorist attacks, climate change or other causes, we might seek to reduce the amount of homeowners business we write. As a result, the Company may not be able to successfully purchase reinsurance and transfer a portion of the Company’s risk through reinsurance arrangements. In addition, we are subject to credit risk with respect to our reinsurance because the ceding of risk to reinsurers does not relieve us of our liability to our policyholders. A significant reinsurer's insolvency or inability to make payments under the terms of a reinsurance treaty could have a material adverse effect on our results of operations or financial condition.
As a holding company, Safety Insurance Group, Inc. is dependent on the results of operations of the Safety Insurance Company.
Safety Insurance Group, Inc. is a company and a legal entity separate and distinct from Safety Insurance Company, our principal operating subsidiary. As a holding company without significant operations of its own, the principal sources of Safety Insurance Group, Inc.'s funds are dividends and other distributions from Safety Insurance Company. Our rights to participate in any distribution of assets of Safety Insurance Company are subject to prior claims of policyholders, creditors and preferred shareholders, if any, of Safety Insurance Company (except to the extent that our rights, if any, as a creditor are recognized). Consequently, our ability to pay debts, expenses and cash dividends to our shareholders may be limited. The ability of Safety Insurance Company to pay dividends is subject to limits under Massachusetts insurance law. Further, the ability of Safety Insurance Group, Inc. to pay dividends, and our subsidiaries' ability to incur indebtedness or to use the proceeds of equity offerings, will be subject to limits under our revolving credit facility.
We are subject to comprehensive government regulation and our ability to earn profits may be restricted by these regulations.
General Regulation. We are subject to regulation by the state insurance department of each state in which we do business. In each jurisdiction, we must comply with various laws and regulations, including those involving:
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In addition, insurance department examiners from Massachusetts perform periodic financial and market conduct examinations of insurance companies. Such regulation is generally intended for the protection of policyholders rather than security holders.
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Massachusetts, New Hampshire and Maine require that all licensed property and casualty insurers bear a portion of the losses suffered by some insureds as a result of impaired or insolvent insurance companies by participating in each state’s insolvency fund. Members of the state’s insolvency fund are assessed a proportionate share of the obligations and expenses of the fund in connection with an insolvent insurer. These assessments are made by the fund to cover the cost of paying eligible claims of policyholders of these insolvent insurers. Similarly, assessments are made by each state’s commercial automobile insurance residual market mechanism to recover the shares of net losses that would have been assessed to the insolvent companies but for their insolvencies. In addition, Massachusetts has established an underwriting association in order to ensure that property insurance is available for owners of high risk property who are not able to obtain insurance from private insurers. The losses of this underwriting association, the Massachusetts Property Insurance Underwriting Association, are shared by all insurers that write property and casualty insurance in Massachusetts. We are assessed from time to time to pay these losses. The effect of these assessments could reduce our profitability in any given period and limit our ability to grow our business.
Because we are unable to predict with certainty changes in the political, economic or regulatory environments of the states in which we operate in the future, there can be no assurance that existing insurance-related laws and regulations will not become more restrictive in the future or that new restrictive laws will not be enacted and, therefore, it is not possible to predict the potential effects of these laws and regulations on us.
We may enter new markets and there can be no assurance that our diversification strategy will be effective.
Although we intend to concentrate on our core businesses in Massachusetts, New Hampshire, and Maine, we also may seek to take advantage of prudent opportunities to expand our core businesses into other states where we believe the independent agent distribution channel is strong. As a result of a number of factors, including the difficulties of finding appropriate expansion opportunities and the challenges of operating in an unfamiliar market, we may not be successful in this diversification. Additionally, in order to carry out any such strategy we would need to obtain the appropriate licenses from the insurance regulatory authority of any such state.
OurOur failure to maintain a commercially acceptable financial strength rating would significantly and negatively affect our ability to implement our business strategy successfully.
A.M. Best has currently assigned Safety Insurance an "A (Excellent)" rating. An "A" rating is A.M. Best's third highest rating, out of 13 possible rating classifications for solvent companies. An "A" rating is assigned to insurers that in A.M. Best's opinion have a strongan excellent ability to meet their ongoing obligations to policyholders. Moreover, an "A" rating is assigned to companies that have, on balance, excellent balance sheet strength, operating performance and business profile when compared to the standards established by A.M. Best. A.M. Best bases its ratings on factors that concern policyholders and not upon factors concerning investor protection. Such ratings are subject to change and are not recommendations to buy, sell, or hold securities. An important factor in an insurer's ability to compete effectively is its A.M. Best rating. Our A.M. Best rating is lower than those of some of our competitors. Any future decrease in our rating could affect our competitive position.
Our losses and loss adjustment expenses may exceed our reserves, which could significantly affect our business.
The reserves for losses and loss adjustment expenses that we have established are estimates of amounts needed to pay reported and unreported claims and related expenses based on facts and circumstances known to us as of the time we established the reserves. Reserves are based on historical claims information, industry statistics and other factors. The establishment of appropriate reserves is an inherently uncertain process. If our reserves are inadequate and are strengthened, we would have to treat the amount of such increase as a charge to our earnings in the period that the deficiency is recognized. As a result of these factors, there can be no assurance that our ultimate liability will not materially exceed our reserves and have a negative effect on our results of operations andor financial condition.
Due to the inherent uncertainty of estimating reserves, it has been necessary, and may over time continue to be necessary, to revise estimated future liabilities as reflected in our reserves for claims and policy expenses. The historic
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development of reserves for losses and loss adjustment expenses may not necessarily reflect future trends in the
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development of these amounts. Accordingly, it is not appropriate to extrapolate redundancies or deficiencies based on historical information.
If we lose key personnel, our ability to implement our business strategy could be delayed or hindered.
The loss of key personnel could prevent us from fully implementing our business strategy and could significantly and negatively affect our financial condition andor results of operations. As we continue to grow, we will need to recruit and retain additional qualified management personnel, and our ability to do so will depend upon a number of factors, such as our results of operations and prospects and the level of competition then prevailing in the market for qualified personnel.
Market fluctuationsAcquisitions may not produce the anticipated benefits and changesmay result in interest rates canunintended consequences, which could have significant and negative effectsa material adverse impact on our investment portfolio.
Ourfinancial condition or results of operations depend in part on the performance of our invested assets. As of December 31, 2017, based upon fair value measurement, 89.6% of our investment portfolio was invested in fixed maturity securities, 8.6% in equity securities and 1.8% in other invested assets. Certain risks are inherent in connection with debt securities including loss upon default and price volatility in reaction to changes in interest rates and general market factors.operations.
We have a significant investment portfolio and adverse capital market conditions, including but not limited to volatility and credit spread changes, will impact the liquidity and value of our investments, potentially resulting in higher realized or unrealized losses. Values of our investments can also be impacted by reductions in price transparency and changes in investor confidence and preferences, potentially resulting in higher realized or unrealized losses. If the carrying value of our investments exceeds the fair value, and the decline in fair value is deemed to be other-than-temporary, we will be required to write down the value of our investments, which could materially harm our results of operations and financial condition.
Developments in the global financial markets may adversely affect our investment portfolio and overall performance. Global financial markets have recently experienced unprecedented and challenging conditions. If conditions further deteriorate, our business could be affected in different ways. Continued turbulence in the U.S. economy and contraction in the credit markets could adversely affect our profitability, demand for our products or our ability to raise rates, and could also result in declines in market value and future impairments of our investment assets.
We may not be able to successfully alleviate risk through reinsurance arrangements which could cause us to reduce our premiums written in certain linesintegrate acquired businesses or could result in losses.
In order to reduce risk and to increase our underwriting capacity, we purchase reinsurance. The availability andachieve the cost of reinsurance protection are subject to market conditions, which are outside of our control. As a result, we may not be able to successfully alleviate risk through these arrangements. For example, if reinsurance capacity for homeowner's risks were reducedexpected synergies as a result of terrorist attacks, climate changesuch acquisitions. The process of integrating an acquired business can be complex and costly and may create unforeseen operating difficulties that could result in the business performing differently than we expected, including through the loss of customers or in our failure to realize anticipated increased revenue growth or expense-related efficiencies.
If our agency business does not perform well, we may be required to recognize an impairment of our goodwill.
Goodwill represents the excess of the amounts we paid to acquire businesses over the fair value of their net assets at the date of acquisition. We test goodwill at least annually for impairment. Impairment testing is performed based upon estimates of the fair value of the “reporting unit” to which the goodwill relates. The fair value of the reporting unit could decrease if new business, customer retention, profitability or other causes,drivers of performance differ from expectations. If it is determined that the goodwill has been impaired, we might seek to reducemust write down the goodwill by the amount of homeowners business we write. In addition, we are subjectthe impairment, with a corresponding charge to credit risk with respect to our reinsurance because the ceding of risk to reinsurers does not relieve us of our liability to our policyholders. A significant reinsurer's insolvency or inability to make payments under the terms of a reinsurance treatynet income (loss). These write downs could have a material adverse effect on our results of operations andor financial condition.
There are anti-takeover provisions contained in our organizational documents and in laws of the State of Delaware and the Commonwealth of Massachusetts that could impede an attempt to replace or remove our management or prevent the sale of our company, which could diminish the value of our common stock.
Our certificate of incorporation, bylaws and the laws of Delaware contain provisions that may delay, deter or prevent a takeover attempt that shareholders might consider in their best interests. For example, our organizational documents provide for a classified board of directors with staggered terms, prevent shareholders from taking action by
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written consent, prevent shareholders from calling a special meeting of shareholders, provide for supermajority voting requirements to amend our certificate of incorporation and certain provisions of our bylaws and provide for the filling of vacancies on our board of directors by the vote of a majority of the directors then in office. These provisions will render the removal of the incumbent board of directors or management more difficult. In addition, these provisions may prevent shareholders from receiving the benefit of any premium over the market price of our common stock offered by a bidder in a potential takeover. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging takeover attempts in the future.
The Massachusetts insurance law prohibits any person from acquiring control of us, and thus indirect control of the Insurance Subsidiaries., without the prior approval of the Commissioner. That law presumes that control exists where any person, directly or indirectly, owns, controls, holds the power to vote or holds proxies representing 10.0% or more of our outstanding voting stock. Even persons who do not acquire beneficial ownership of more than 10.0% of the outstanding shares of our common stock may be deemed to have acquired such control if the Commissioner determines that such control exists in fact. Therefore, any person seeking to acquire a controlling interest in us would face regulatory obstacles which could delay, deter or prevent an acquisition that shareholders might consider in their best interests.
Section 203 of the General Corporation Law of Delaware, the jurisdiction in which the Company is organized, may affect the ability of an "interested stockholder" to engage in certain business combinations including mergers, consolidations or acquisitions of additional shares, for a period of three years following the time that the stockholder becomes an interested stockholder. An interested stockholder is defined to include persons owning directly or indirectly 15.0% or more of the outstanding voting stock of the corporation.
Future sales of shares of our common stock by our existing shareholders in the public market, or the possibility or perception of such future sales, could adversely affect the market price of our stock.
Investors currently known to be the beneficial owners of greater than 5.0% of our outstanding common stock hold approximately 48.2%47.3% of the common stock of Safety Insurance Group, Inc. on a fully diluted basis. No prediction can be made as to the effect, if any, that future sales of shares by our existing shareholders, or the availability of shares for future sale, will have on the prevailing market price of our common stock from time to time. Sales of substantial amounts of our common stock in the public market by our existing shareholders, or the possibility or perception that such sales could occur, could cause the prevailing market prices for our common stock to decrease. If such sales reduce the market price of our common stock, our ability to raise additional capital in the equity markets may be adversely affected.
A proxy contest with an activist shareholder could cause us to incur significant costs, divert management’s attention and resources, and have an adverse effect on our business
Activist shareholders may engage in proxy solicitations, advance shareholder proposals or director nominations or otherwise attempt to affect changes or acquire control over us. Responding to these actions can be costly and time-consuming and divert the attention of our Board and management from the management of our operations and the pursuit of our business strategies, particularly if such activist shareholders advocate for actions that are not supported by other shareholders, our Board or management. In addition, perceived uncertainties as to our future direction may result in the loss of potential business opportunities, damage to our reputation and may make it more difficult to attract and retain
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qualified directors, personnel and business partners. These actions could also cause our stock price to experience periods of volatility.
We are subject to technology, cybersecurity and privacy risks:
Our business depends on the uninterrupted operation of our systems and business functions, including our information technology, telecommunications and other business systems. Our business continuity and disaster recovery plans may not sufficiently address all contingencies.
Our business is highly dependent upon our ability to execute, in an efficient and uninterrupted fashion, necessary business functions, such as processing new and renewal business, providing customer service, and processing and paying claims. A shut-down of or inability to access our facility, a power outage, or a failure of one or more of our information technology, telecommunications or other systems could significantly impair our ability to perform such functions on a timely basis. If sustained or repeated, such a business interruption, systems failure or service denial could result in a deterioration in the level of service we provide to our agents and policyholders. We have established a business continuity plan in an effort to ensure the continuation of core business operations in the event that normal business operations could not be performed due to a catastrophic event. While we continue to test and assess our business continuity plan to ensure it meets the needs of our core business operations and addresses multiple business interruption events, there is no assurance that core business operations could be performed upon the occurrence of such an event, which may result in a material adverse effect on our financial position andor results of operations.
We outsource certain business and administrative functions to third parties and may do so increasingly in the future. If we fail to develop and implement our outsourcing strategies or our third-party providers fail to perform as
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anticipated, we may experience operational difficulties, increased costs and a loss of business that may have a material adverse effect on our results of operations or financial condition.
Our business could be materially and adversely affected by a security breach or other attack involving our computer systems or the systems of one or more of our agents and vendors.
Our highly automated and networked organization is subject to cyber-terrorism and a variety of other cyber-security threats. These threats come in a variety of forms, such as viruses and malicious software. Such threats can be difficult to prevent or detect, and if experienced, could interrupt or damage our operations, harm our reputation or have a material effect on our operations. Our technology and telecommunications systems are highly integrated and connected with other networks. Cyber-attacks involving these systems could be carried out remotely and from multiple sources and could interrupt, damage or otherwise adversely affect the operations of these critical systems. Cyber-attacks could result in the modification or theft of data, the distribution of false information or the denial of service to users. The risks of cyber-attacks could be exacerbated by geopolitical tensions, including hostile actions taken by nation-states and terrorist organizations. We obtain, utilize and maintain data concerning individuals and organizations with which we have a business relationship. Threats to data security can emerge from a variety of sources and change in rapid fashion, resulting in the ongoing need to expend resources to secure our data in accordance with customer expectations and statutory and regulatory requirements.
Our businesses must comply with regulations to control the privacy of customer, employee and third-party data, and state, federal and international regulations regarding data privacy, are becoming increasingly more onerous. A misuse or mishandling of confidential or proprietary information could result in legal liability, regulatory action and reputational harm. We could be subject to liability if confidential customer information is misappropriated from our technology systems. Despite the implementation of security measures, these systems may be vulnerable to physical
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break-ins, computer viruses, programming errors, attacks by third parties or similar disruptive problems. Any well-publicized compromise of security could deter people from entering into transactions that involve transmitting confidential information to our systems, which could have a material adverse effect on our business and reputation. We rely on services and products provided by many vendors. In the event that one or more of our vendors fails to protect personal information of our customers, claimants or employees, we may incur operational impairments, or could be exposed to litigation, compliance costs or reputational damage. While we have not experienced material cyber-incidents to date, the occurrence and effects of cyber-incidents may remain undetected for an extended period. We maintain cyber-liability insurance coverage to offset certain potential losses, subject to policy limits, such as liability to others, costs of related crisis management, data extortion, applicable forensics and certain regulatory defense costs, fines and penalties.
The recently enacted U.S. tax reform billWhile, to date, we are not aware of having experienced a material breach of our cyber security systems, administrative, internal accounting and technical controls as well as other preventive actions may be insufficient to prevent physical and electronic break-ins, denial of service, cyber-attacks, business email compromises, ransomware or other security breaches to our systems or those of third parties with whom we do business.
We believe that we have established and implemented appropriate security measures to provide reasonable assurance that our information technology systems are secure and appropriate controls and procedures to enable us to identify and respond to unauthorized access to such systems. While we have not experienced material cyber-incidents to date, the occurrence and effects of cyber-incidents may remain undetected for an extended period. We periodically engage third parties to evaluate and test the adequacy of our security measures, controls and procedures. Despite these security measures, controls and procedures, disruptions to and breaches of our information technology systems are possible.
We invest in securities which are subject to market risk:
Market fluctuations and changes in interest rates can have significant and negative effects on our investment portfolio.
Our results of operations depend in part on the performance of our invested assets. As of December 31, 2022, based upon fair value measurement, 74.9% of our investment portfolio was invested in fixed maturity securities, 17.1% in equity securities and 8.0% in other invested assets. Certain risks are inherent in connection with debt securities including loss upon default and price volatility in reaction to changes in interest rates and general market factors.
We have a significant investment portfolio and adverse capital market conditions, including but not limited to volatility and credit spread changes, will have an impact onthe liquidity and value of our investments, potentially resulting in higher realized or unrealized losses. Values of our investments can also be impacted by reductions in price transparency and changes in investor confidence and preferences, potentially resulting in higher realized or unrealized losses. If the carrying value of our investments exceeds the fair value, and the decline in fair value is deemed to be other-than-temporary, we will be required to write down the value of our investments, which could materially harm our results of operation andoperations or financial condition.
On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “TCJA”) was enacted, which significantly amends the Internal Revenue Code of 1986. The TCJA, among other things, reduces the corporate tax rate from a statutory rate of 35% to 21%, imposes additional limitations on net operating losses and executive compensation, allows for the full expensing of certain capital expenditures, and enacts other changes impacting the insurance industry.
While we are currently evaluating the future impacts of the TCJA, we expect that the legislation will have a favorable impact on our financial results beginning in 2018. In addition, the enactment of the TCJA resulted in a tax benefit of $1,500 as a result of applying the lower corporate rate change to our deferred tax assets and liabilities as of the enactment date.
As of the date of this report, the Company had no unresolved comments from the Commission staff regarding its periodic or current reports under the Exchange Act.
We conduct most of our operations in approximately 7472 thousand square feet of leased space at 20 Custom House Street in downtown Boston, Massachusetts. Our lease was extended for an additional eleven year term starting on January 1, 2018 and will expire on December 31, 2028.2028. This real estate space was remodeled in 2018 and included capital expenditures to update lighting as well as heating, ventilation and air condition systems with state of the art and environmentally focused technologies.
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Our Insurance Subsidiaries are parties to a number of lawsuits arising in the ordinary course of their insurance business. We believe that the ultimate resolution of these lawsuits will not, individually or in the aggregate, have a material adverse effect on our financial condition.
On December 15, 2015,Safety Insurance had been named in a lawsuit alleging that the Company filedimproperly denied coverage to commercial insureds for arbitration with a reinsurer in regards to the reinsurance recoverableloss of business income resulting from the 2015 winter storm losses that are admissible under our contract. On January 8, 2018,COVID-19 pandemic. As a result of the lawsuit, the Company receivedaccrued a final order fromreserve of $6,500 for legal defense costs included in loss and loss adjustment expense during the panelyear ended December 31, 2021. As of arbitrators for settlementDecember 31, 2022, the claim against the Company was closed and the accrual of $6,500 was reversed.
On October 19, 2021, the Supreme Judicial Court of Massachusetts (the “Court”) unanimously ruled that property and casualty insurers must compensate third-party claimants under property damage coverage, part 4 of the paidstandard Massachusetts automobile insurance policy, 2008 edition (standard policy), for the inherent diminished value (“IDV”) that occurs when their vehicles are damaged in a crash. This ruling overturned a previous decision by the Massachusetts Superior Court, which found that a Massachusetts auto insurance policy did not provide property damage coverage for inherent diminished value damages for third-party claimants. The Court placed the burden of proof on the individual claimant by explicitly specifying that the claimant must establish that the vehicle has suffered IDV damages and outstanding losses. also the amount of IDV damages at issue. The Court further ruled that an insurer’s previous denial of coverage for such damages could not serve as the basis for a claim of unfair business practices. Based on the Court’s rulings, at this time the Company does not expect any claims for IDV damages to be material, and therefore has not accrued for a specific loss contingency
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable
3033
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
As of February 16, 2018,21, 2023, there were 2220 holders of record of the Company's common stock, par value $0.01 per share, and we estimate another 9,35217,280 held in "Street Name."
|
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|
|
|
2017 |
| High |
|
| Low |
First quarter | $ | 73.85 |
| $ | 68.60 |
Second quarter | $ | 72.40 |
| $ | 66.10 |
Third quarter | $ | 76.50 |
| $ | 68.20 |
Fourth quarter | $ | 83.25 |
| $ | 78.30 |
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|
|
|
|
2016 |
| High |
|
| Low |
First quarter | $ | 57.51 |
| $ | 53.36 |
Second quarter | $ | 62.49 |
| $ | 54.63 |
Third quarter | $ | 68.50 |
| $ | 61.14 |
Fourth quarter | $ | 74.70 |
| $ | 65.60 |
The closing price of the Company's common stock on February 16, 201821, 2023 was $74.45$87.32 per share. The Company’s common stock trades on the NASDAQ stock exchange under the symbol SAFT.
During 20172022 and 2016,2021, the Company’s Board of Directors declared four quarterly cash dividends to shareholders, which were paid and accrued in the amounts of $45,689$52,995 and $42,390,$53,996, respectively. On February 15, 2018,22, 2023, the Company's Board of Directors declared a quarterly cash dividend of $.80$0.90 per share to shareholders of record on March 1, 20182023 payable on March 15, 2018.2023. The Company plans to continue to declare and pay quarterly cash dividends in 2018,2023, depending on the Company's financial position and the regularity of its cash flows.
The Company relies on dividends from its Insurance Subsidiaries for a portion of its cash requirements. The payment by the Company of any cash dividends to the holders of common stock therefore depends on the receipt of dividend payments from its Insurance Subsidiaries. The payment of dividends by the Insurance Subsidiaries is subject to limitations imposed by Massachusetts law, as discussed in Item 1—Business, Supervision and Regulation, Insurance Regulation Concerning Dividends, and also in Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations, Liquidity and Capital Resources.
The information called for by Item 201 (d) of Regulation S-K regarding securities authorized for issuance under equity compensation plans will be contained in the Company's Proxy Statement for its Annual Meeting of Shareholders, to be held on May 23, 2018 in Boston, MA, which the Company intends to file with the U.S. Securities and Exchange Commission within 120 days after December 31, 20172022 (the Company's fiscal year end), and such information is incorporated herein by reference.
For information regarding our share repurchase program, refer to Item 8—Financial Statements and Supplementary Data, Note 12,14, Share Repurchase Program, of this Form 10-K.
COMMON STOCK PERFORMANCE GRAPH
Set forth below is a line graph comparing the dollar change in the cumulative total shareholder return on the Company's Common Stock, for the period beginning on December 31, 20122017 and ending on December 31, 20172022 with the cumulative total return of the NASDAQ Stock Market Index and a peer group comprised of sixseven selected property & casualty insurance companies over the same period. The peer group consists of Baldwin & Lyons,Donegal Group, Inc., Infinity Property & Casualty Corp.Erie Indemnity Company, Horace Mann Educators Corporation, The Hanover Insurance Group, Inc., Mercury General Corp., State Auto Financial Corp., Selective Insurance Group, Inc., and Donegal
31
Group, Inc.United Fire Group. Note that this peer group has changed from prior years due to acquisition activity. The graph shows the change in value of an initial one hundred dollar investment over the period indicated, assuming re-investment of all dividends.
34
Comparative Cumulative Total Returns since December 31, 20122017 Among
Safety Insurance Group, Inc.,
Property & Casualty Insurance Peer Group and the NASDAQ Stock Market Index
The foregoing performance graph and data shall not be deemed "filed" as part of this Form 10-K for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section and should not be deemed incorporated by reference into any other filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates it by reference into such filing.
3235
ITEM 6. SELECTED FINANCIAL DATA [RESERVED]
The following table sets forth our selected historical consolidated financial data as of and for each of the five years ended December 31, 2017, 2016, 2015, 2014 and 2013.
The selected historical consolidated financial data for the years ended December 31, 2017, 2016, and 2015, and as of December 31, 2017 and 2016 have been derived from the financial statements of Safety Insurance Group, Inc. included in this annual report which have been audited. The selected historical consolidated financial data for the years ended December 31, 2014 and 2013 and as of December 31, 2015, 2014 and 2013 has been derived from Safety Insurance Group, Inc.'s consolidated financial statements not included in this annual report, which have been audited.
We have prepared the selected historical consolidated financial data in conformity with U. S. generally accepted accounting principles.
The selected financial data presented below should be read in conjunction with Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and the accompanying notes included in this Form 10-K in order to more fully understand the historical consolidated financial data.
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|
| Years Ended December 31, |
| |||||||||||||
|
|
| 2017 |
| 2016 |
|
| 2015 |
|
| 2014 |
|
| 2013 |
| ||
Direct written premiums |
|
| $ | 827,316 |
| $ | 811,559 |
| $ | 785,730 |
| $ | 765,685 |
| $ | 731,680 |
|
Net written premiums |
|
| $ | 781,054 |
| $ | 766,470 |
| $ | 746,180 |
| $ | 734,914 |
| $ | 697,450 |
|
Net earned premiums |
|
| $ | 774,420 |
| $ | 755,760 |
| $ | 738,164 |
| $ | 716,875 |
| $ | 681,870 |
|
Net investment income |
|
|
| 38,758 |
|
| 38,413 |
|
| 40,534 |
|
| 42,303 |
|
| 43,054 |
|
Earnings from partnership investments |
|
|
| 2,082 |
|
| 3,185 |
|
| 2,387 |
|
| 878 |
|
| - |
|
Net realized gains (losses) on investments |
|
|
| 6,036 |
|
| 5,559 |
|
| (469) |
|
| 197 |
|
| 1,677 |
|
Net impairment losses on investments |
|
|
| (256) |
|
| (798) |
|
| (796) |
|
| - |
|
| - |
|
Finance and other service income |
|
|
| 18,073 |
|
| 17,703 |
|
| 18,133 |
|
| 18,544 |
|
| 18,683 |
|
Total revenue |
|
|
| 839,113 |
|
| 819,822 |
|
| 797,953 |
|
| 778,797 |
|
| 745,284 |
|
Losses and loss adjustment expenses |
|
|
| 503,887 |
|
| 493,433 |
|
| 612,569 |
|
| 476,366 |
|
| 447,749 |
|
Underwriting, operating and related expenses |
|
|
| 248,436 |
|
| 233,017 |
|
| 213,939 |
|
| 219,023 |
|
| 209,758 |
|
Interest expense |
|
|
| 90 |
|
| 90 |
|
| 90 |
|
| 90 |
|
| 89 |
|
Total expenses |
|
|
| 752,413 |
|
| 726,540 |
|
| 826,598 |
|
| 695,479 |
|
| 657,596 |
|
Income (loss) before income taxes |
|
|
| 86,700 |
|
| 93,282 |
|
| (28,645) |
|
| 83,318 |
|
| 87,688 |
|
Income tax expense (credit) |
|
|
| 24,313 |
|
| 28,697 |
|
| (14,792) |
|
| 23,964 |
|
| 26,337 |
|
Net income (loss) |
|
| $ | 62,387 |
| $ | 64,585 |
|
| (13,853) |
|
| 59,354 |
|
| 61,351 |
|
Earnings (loss) per weighted average common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| $ | 4.13 |
| $ | 4.29 |
| $ | (0.93) |
| $ | 3.93 |
| $ | 3.99 |
|
Diluted |
|
| $ | 4.10 |
| $ | 4.27 |
| $ | (0.93) |
| $ | 3.91 |
| $ | 3.98 |
|
Cash dividends paid per common share |
|
| $ | 3.00 |
| $ | 2.80 |
| $ | 2.80 |
| $ | 2.60 |
| $ | 2.40 |
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|
|
|
|
|
|
|
|
|
Number of shares used in computing earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
| 15,010,751 |
|
| 14,946,453 |
|
| 14,866,607 |
|
| 14,963,047 |
|
| 15,167,052 |
|
Diluted |
|
|
| 15,135,348 |
|
| 15,032,263 |
|
| 14,866,607 |
|
| 15,052,745 |
|
| 15,212,385 |
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Years Ended December 31, |
| ||||||||||||
| 2017 |
| 2016 |
|
| 2015 |
|
| 2014 |
|
| 2013 |
| ||
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and investment securities | $ | 1,348,763 |
| $ | 1,300,558 |
| $ | 1,256,937 |
| $ | 1,298,716 |
| $ | 1,258,453 |
|
Total assets |
| 1,807,279 |
|
| 1,758,246 |
|
| 1,703,869 |
|
| 1,675,719 |
|
| 1,625,457 |
|
Losses and loss adjustment expense reserves |
| 574,054 |
|
| 560,321 |
|
| 553,977 |
|
| 482,012 |
|
| 455,014 |
|
Total liabilities |
| 1,106,263 |
|
| 1,087,520 |
|
| 1,059,370 |
|
| 967,436 |
|
| 930,270 |
|
Total shareholders' equity |
| 701,016 |
|
| 670,726 |
|
| 644,499 |
|
| 708,283 |
|
| 695,187 |
|
GAAP Ratios: |
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|
|
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|
|
|
|
|
|
|
|
|
|
Loss ratio (1) |
| 65.1 | % |
| 65.3 | % |
| 83.0 | % |
| 66.5 | % |
| 65.7 | % |
Expense ratio (1) |
| 32.1 |
|
| 30.8 |
|
| 29.0 |
|
| 30.6 |
|
| 30.8 |
|
Combined ratio (1) |
| 97.2 | % |
| 96.1 | % |
| 112.0 | % |
| 97.1 | % |
| 96.5 | % |
(1) The loss ratio is the ratio of losses and loss adjustment expenses to net earned premiums. The expense ratio, when calculated on a GAAP basis, is the ratio of underwriting expense to net earned premiums. The combined ratio is the sum of the loss ratio and the expense ratio. Please refer to Insurance Ratios under Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations for further discussion on our GAAP ratios.
34
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our accompanying consolidated financial statements and notes thereto, which appear elsewhere in this document. In this discussion, all dollar amounts are presented in thousands, except share and per share data.
The following discussion contains forward-looking statements. We intend statements which are not historical in nature to be, and are hereby identified as “forward-looking statements” to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In addition, the Company’s senior management may make forward-looking statements orally to analysts, investors, the media and others. This safe harbor requires that we specify important factors that could cause actual results to differ materially from those contained in forward-looking statements made by or on behalf of us. We cannot promise that our expectations in such forward-looking statements will turn out to be correct. Our actual results could be materially different from and worse than our expectations. See “Forward-Looking Statements” below for specific important factors that could cause actual results to differ materially from those contained in forward-looking statements.
Executive Summary and Overview
In this discussion, “Safety” refers to Safety Insurance Group, Inc. and “our Company,” “we,” “us” and “our” refer to Safety Insurance Group, Inc. and its consolidated subsidiaries. Our subsidiaries consist of Safety Insurance Company (“Safety Insurance”), Safety Indemnity Insurance Company (“Safety Indemnity”), Safety Property and Casualty Insurance Company (“Safety P&C”), Safety Asset Management CorporationNortheast Insurance Company (“SAMC”Safety Northeast”), Safety Northeast Insurance Agency, Inc. (“SNIA”), and Safety Management Corporation (“SMC”), which is SAMC’sSNIA’s holding company.
We are a leading provider of private passenger and commercial automobile insurance in Massachusetts. In addition to private passenger automobile insurance (which represented 56.7%(52.0% of our direct written premiums in 2017)2022), commercial automobile, (17.4% of 2022 direct written premiums), and homeowners (25.3% of 2022 direct written premiums) insurance. In addition to these coverages, we offer a portfolio of other insurance products, including commercial automobile (15.7% of 2017 direct written premiums), homeowners (22.7% of 2017 direct written premiums), dwelling fire, umbrella and business owner policies (totaling 4.9%5.3% of 20172022 direct written premiums). Operating exclusively in Massachusetts, New Hampshire and Maine through our insurance company subsidiaries, Safety Insurance, Safety Indemnity, Safety P&C, and Safety P&CNortheast (together referred to as the “Insurance Subsidiaries”), we have established strong relationships with independent insurance agents, who numbered 892843 in 1,1071,071 locations throughout these three states during 2017.2022. We have used these relationships and our extensive knowledge of the market to become the fourthfifth largest private passenger automobile carrier and the second largest commercial automobile carrier in Massachusetts, capturing an approximate 9.3%7.7% and 15.6%12.6% share, respectively, of the Massachusetts private passenger and commercial automobile markets in 2017,2022, according to statistics compiled by CARthe Commonwealth Automobile Reinsurers (“CAR”) based on automobile exposures. We also are the third largest homeowners insurance carrier in Massachusetts, with a 7.3%market share of that market. We were ranked the 48th largest automobile writer6.5% in the country according to 2021.
A.M. Best, which rates insurance companies based on 2016 direct written premiums. We were incorporated under the lawsfactors of Delaware in 2001, but through our predecessors, we have underwritten insurance in Massachusetts since 1979.concern to policyholders, currently assigns Safety Insurance an “A (Excellent)” rating. Our “A” rating was reaffirmed by A.M. Best on May 26, 2022.
Our Insurance Subsidiaries began writing insurance in New Hampshire during 2008 and Maine in 2016. In November 2020, we formed a fourth insurance subsidiary, Safety Northeast, which became licensed to write insurance products in Massachusetts. The table below shows the amount of direct written premiums and number of policies written in each state during the years ended December 31, 2017, 2016,2022, 2021, and 2015.
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|
| Years Ended December 31, | |||||||
Direct Written Premiums | 2017 |
| 2016 |
| 2015 | |||
Massachusetts | $ | 799,427 |
| $ | 785,376 |
| $ | 762,999 |
New Hampshire |
| 27,637 |
|
| 26,128 |
|
| 22,731 |
Maine |
| 252 |
|
| 55 |
|
| - |
Total | $ | 827,316 |
| $ | 811,559 |
| $ | 785,730 |
2020.
3536
| | | | | | | | |
| Years Ended December 31, | |||||||
Direct Written Premiums | 2022 | | 2021 | | 2020 | |||
Massachusetts | $ | 782,790 | | $ | 765,007 | | $ | 764,479 |
New Hampshire | | 36,519 | | | 34,261 | | | 32,334 |
Maine | | 4,009 | | | 2,871 | | | 1,899 |
Total | $ | 823,318 | | $ | 802,139 | | $ | 798,712 |
Recent TrendsEvents
On December 1, 2022, SNIA was established when the Company acquired the assets and Eventsoperations of Northeast Metrowest Insurance Agency, Inc. (“Northeast / Metrowest”), an independent insurance agency, through its wholly-owned subsidiary, SMC. Since 1989, Northeast / Metrowest had provided personal and commercial insurance to properly protect its customers by determining the best coverage to suit their unique needs. Over time, Northeast / Metrowest had grown to include over $40 million in policy premiums. SNIA will operate as a stand-alone business operation, providing personal and commercial property and casualty insurance products to customers on behalf of the Insurance Subsidiaries and third-party insurance carriers.
The Company had been named in a lawsuit alleging that the Company improperly denied coverage to commercial insureds for loss of business income resulting from the COVID-19 pandemic. Our position is that no coverage existed for this peril. As a result of the lawsuit, the Company accrued a reserve of $6,500 for legal defense costs included in the loss and loss adjustment expenses during the year ended December 31, 2021. During the year ended December 31, 2022, the claim against the Company was closed and the accrual of $6,500 was reversed.
Losses and Loss Adjustment Expenses
Losses and loss adjustment expenses incurred for the year ended December 31, 20172022 increased by $10,454,$30,252, or 2.1%6.6%, to $503,887$491,979 from $493,433$461,727 for the comparable 20162021 period. The increase in losses is due to a return of pre-pandemic frequency in our private passenger automobile line of business and current market conditions including inflation and supply chain delays.
Loss, expense, and combined ratios calculated under U.S. generally accepted accounting principles for the quarter ended December 31, 2022 were 68.4%, 32.3%, and 100.7%, respectively, compared to 62.7%, 33.7%, and 96.4%, respectively, for the comparable 2021 period. Loss, expense, and combined ratios calculated under U.S. generally accepted accounting principles for the year ended December 31, 2022 were 64.9%, 32.3%, and 97.2%, respectively, compared to 59.6%, 33.4%, and 93.0%, respectively, for the comparable 2021 period. The 2022 decrease in the expense ratios in both periods is primarily driven by a decrease in contingent commission expense.
We define a “catastrophe” as an event that produces pre-tax losses before reinsurance in excess of $1,000 and involves multiple first-party policyholders, or an event that produces a number of claims in excess of a preset, per-event threshold of average claims in a specific area, occurring within a certain amount of time following the event. Catastrophes are caused by various natural events including high winds, winter storms, tornadoes, hailstorms, and hurricanes. The nature and level of catastrophes in any period cannot be reliably predicted.
Catastrophe losses incurred by the type of event are shown in the following table.
| | | | | | | | | |
| | Years Ended December 31, | |||||||
Event | 2022 | | 2021 | | 2020 | ||||
Windstorms and hailstorms | $ | - | | $ | 11,677 | | $ | 7,291 | |
| Total losses incurred (1) | $ | - | | $ | 11,677 | | $ | 7,291 |
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|
|
|
|
|
| Years Ended December 31, | |||||||
Event | 2017 |
| 2016 |
| 2015 | ||||
Windstorms and hailstorms | $ | 6,700 |
| $ | - |
| $ | 13,569 | |
Tornado and windstorms |
| - |
|
| - |
|
| - | |
Rainstorms |
| - |
|
| - |
|
| - | |
Floods |
| - |
|
| - |
|
| - | |
Icestorms and snowstorms |
| - |
|
| 8,854 |
|
| 167,367 | |
Hurricane and tropical storms |
| - |
|
| - |
|
| - | |
| Total losses incurred (1) | $ | 6,700 |
| $ | 8,854 |
| $ | 180,936 |
37
(1) Total losses incurred include losses plus defense and cost containment expenses and excludes adjusting and other claims settlement expenses.
On December 15, 2015, the Company filed for arbitration with a reinsurer in regards to the reinsurance recoverable resulting from the 2015 winter storm losses that are admissible under our contract. The total amountTable of recoverable in dispute, which is based on our total incurred loss, was $20,918 and $22,838 as of December 31, 2017 and 2016, respectively. The change in the recovery is attributable to changes in the total incurred loss for reserve development. On January 8, 2018 the Company received a final order from the panel of arbitrators in which the reinsurer would pay the Company $9,200 for settlement of all paid and outstanding losses. The remaining unrecovered amount of $11,718 was expensed in 2017.Contents
At December 31, 2017 and December 31, 2016, the reinsurance recoverable on paid and unpaid loss and loss adjustment expenses related to the 2015 snow event from all reinsurers was $675 and $31,701, respectively.
| (1) | Total losses incurred include losses plus defense and cost containment expenses and excludes adjusting and other claims settlement expenses. |
The following rate changes have been filed and approved by the insurance regulators of Massachusetts and New Hampshire in 20172022 and 2016.2021. Our Massachusetts private passenger automobile rates include a 13% commission rate for agents.
| | | | |
Line of Business | Effective Date | Rate Change | ||
| |
| |
|
Massachusetts Homeowner | | July 1, 2022 | | 2.6% |
Massachusetts Private Passenger Automobile | |
| |
|
Massachusetts | |
| |
|
New Hampshire Commercial Automobile | |
| |
|
New Hampshire | |
| |
|
New Hampshire Private Passenger Automobile | |
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| ||
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| ||
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36
Statutory Accounting Principles
Our results are reported in accordance with GAAP,generally accepted accounting principles (“GAAP”), which differ from amounts reported in accordance with statutory accounting principles ("SAP") as prescribed by insurance regulatory authorities, which in general reflect a liquidating, rather than going concern concept of accounting. Specifically, under GAAP:
| Policy acquisition costs such as commissions, premium taxes and other variable costs incurred which are directly related to the successful acquisition of a new or renewal insurance contract are capitalized and amortized on a pro rata basis over the period in which the related premiums are earned, rather than expensed as incurred, as required by SAP. |
| Certain assets are included in the consolidated balance sheets whereas, under SAP, such assets are designated as "nonadmitted assets," and charged directly against statutory surplus. These assets consist primarily of premium receivables that are outstanding over ninety days, federal deferred tax assets in excess of statutory limitations, furniture, equipment, leasehold improvements and prepaid expenses. |
| Amounts related to ceded reinsurance are shown gross of ceded unearned premiums and reinsurance recoverables, rather than netted against unearned premium reserves and loss and loss adjustment expense reserves, respectively, as required by SAP. |
| Fixed maturities securities, which are classified as available-for-sale, are reported at current fair values, rather than at amortized cost, or the lower of amortized cost or market, depending on the specific type of security, as required by SAP. |
| The differing treatment of income and expense items results in a corresponding difference in federal income tax expense. Changes in deferred income taxes are reflected as an item of income tax benefit or expense, rather than recorded directly to surplus as regards policyholders, as required by SAP. Admittance testing may result in a charge to unassigned surplus for non-admitted portions of deferred tax assets. Under GAAP reporting, a valuation allowance may be recorded against the deferred tax asset and reflected as an expense. |
Insurance Ratios
The property and casualty insurance industry uses the combined ratio as a measure of underwriting profitability. The combined ratio is the sum of the loss ratio (losses and loss adjustment expenses incurred as a percent of net earned premiums) plus the expense ratio (underwriting and other expenses as a percent of net earned premiums, calculated on a GAAP basis). The combined ratio reflects only underwriting results and does not include income from
38
investments or finance and other service income. Underwriting profitability is subject to significant fluctuations due to competition, catastrophic events, weather, economic and social conditions, and other factors.
Our GAAP insurance ratios are presented in the following table for the periods indicated.
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|
|
|
|
|
|
| Years Ended December 31, | |||||
|
| 2017 |
| 2016 |
| 2015 |
|
GAAP ratios: |
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|
|
|
|
|
|
Loss ratio |
| 65.1 | % | 65.3 | % | 83.0 | % |
Expense ratio |
| 32.1 |
| 30.8 |
| 29.0 |
|
Combined ratio |
| 97.2 | % | 96.1 | % | 112.0 | % |
| | | | | | | |
|
| Years Ended December 31, | |||||
| | 2022 | | 2021 |
| 2020 |
|
GAAP ratios: | | | | | | | |
Loss ratio |
| 64.9 | % | 59.6 | % | 52.5 | % |
Expense ratio |
| 32.3 | | 33.4 | | 34.6 | |
Combined ratio |
| 97.2 | % | 93.0 | % | 87.1 | % |
Share-Based Compensation
On June 25, 2002,March 24, 2022, the Company’s Board of Directors of the Company (the "Board") adopted the Amended and Restated Safety Insurance Group, Inc. 2018 Long-Term Incentive Plan (the “Amended 2018 Plan”), which was subsequently approved by our shareholders at the 2022 Annual Meeting of Shareholders. The Amended 2018 Plan increases the share pool limit by adding 350,000 common shares to the previously adopted Safety Insurance Group, Inc. 2018 Long-Term Incentive Plan. The Amended 2018 Plan enables the grant of stock awards, performance shares, cash-based performance units, other stock-based awards, stock options, stock appreciation rights, and stock unit awards, each of which may be granted separately or in tandem with other awards. Eligibility to participate includes officers, directors, employees and other individuals who provide bona fide services to the Company. The Amended 2018 Plan supersedes the Company’s 2002 Management Omnibus Incentive Plan (the "Incentive Plan"(“the 2002 Incentive Plan”).
The IncentiveAmended 2018 Plan provides forestablishes a varietypool of awards, including nonqualified stock options ("NQSOs"), stock appreciation rights and restricted stock ("RS") awards.
37
On March 10, 2006, the Board approved amendments to the Incentive Plan, subject to shareholder approval, to (i) increase the number of700,000 shares of common stock available for issuance by 1,250,000 shares, (ii) remove obsolete provisions,to our employees and (iii) make other non-material changes. A totaleligible participants. The Board of 1,250,000 shares of common stock had previously been authorized for issuanceDirectors and the Compensation Committee intend to issue awards under the Incentive Plan. The IncentiveAmended 2018 Plan as amended, was approved byin the shareholders at the 2006 Annual Meeting of Shareholders which was held on May 19, 2006. Under the Incentive Plan, as amended, thefuture.
The maximum number of shares of common stock between both the 2018 Amended Plan and 2002 Incentive Plan with respect to which awards may be granted is 2,500,000. As of3,200,000. No further grants will be allowed under the 2002 Incentive Plan. At December 31, 2017,2022, there were 209,087444,216 shares available for future grant. The Board and the Compensation Committee intend to issue more awards under the Incentive Plan in the future. Grants outstanding under the Incentive Planplans as of December 31, 2017,2022, were comprised of 198,746138,482 restricted shares.
Grants made under the Incentive Plan during the years 20132020 through 20172022 were as follows.
| | | | | | | | | |
Type of |
|
|
| Number of |
| | Fair |
|
|
Equity | | | | Awards | | | Value per | | |
Awarded |
| Effective Date |
| Granted |
| | Share (1) | | Vesting Terms |
RS - Service |
| February 26, 2020 |
| 28,799 |
| $ | 90.50 | | 3 years, 30%-30%-40% |
RS - Performance |
| February 26, 2020 |
| 24,062 |
| $ | 90.50 | | 3 years, cliff vesting (3) |
RS |
| February 26, 2020 |
| 5,000 |
| $ | 90.50 | | No vesting period (2) |
RS - Performance |
| February 26, 2020 |
| 12,587 |
| $ | 90.50 | | No vesting period (4) |
RS |
| March 27, 2020 |
| 1,000 |
| $ | 76.60 | | No vesting period (2) |
RS - Service |
| February 24, 2021 |
| 33,840 |
| $ | 79.27 | | 3 years, 30%-30%-40% |
RS - Performance |
| February 24, 2021 |
| 29,422 |
| $ | 79.27 | | 3 years, cliff vesting (3) |
RS |
| February 24, 2021 |
| 6,000 |
| $ | 79.27 | | No vesting period (2) |
RS - Performance |
| February 24, 2021 |
| 20,038 |
| $ | 79.27 | | No vesting period (4) |
RS - Service |
| February 23, 2022 |
| 31,864 |
| $ | 84.98 | | 3 years, 30%-30%-40% |
RS - Performance |
| February 23, 2022 |
| 26,037 |
| $ | 84.98 | | 3 years, cliff vesting (3) |
RS |
| February 23, 2022 |
| 5,000 |
| $ | 84.98 | | No vesting period (2) |
RS |
| March 24, 2022 |
| 2,000 |
| $ | 89.63 | | No vesting period (2) |
RS - Performance |
| February 23, 2022 |
| 5,791 |
| $ | 84.98 | | No vesting period (4) |
|
|
|
|
|
|
|
|
|
|
Type of |
|
|
| Number of |
|
| Fair |
|
|
Equity |
|
|
| Awards |
|
| Value per |
|
|
Awarded |
| Effective Date |
| Granted |
|
| Share |
| Vesting Terms |
RS - Service |
| March 11, 2013 |
| 28,988 |
| $ | 46.96 | (1) | 3 years, 30%-30%-40% |
RS - Performance |
| March 11, 2013 |
| 35,429 |
| $ | 43.90 | (2) | 3 years, cliff vesting (4) |
RS |
| March 11, 2013 |
| 4,000 |
| $ | 46.96 | (1) | No vesting period (3) |
RS - Service |
| March 27, 2013 |
| 22,485 |
| $ | 48.65 | (1) | 5 years, 20% annually (5) |
RS - Service |
| July 8, 2013 |
| 500 |
| $ | 51.63 | (1) | 5 years, 20% annually (5) |
RS - Service |
| August 5, 2013 |
| 1,659 |
| $ | 54.26 | (1) | 3 years, 30%-30%-40% |
RS - Performance |
| August 5, 2013 |
| 2,027 |
| $ | 48.27 | (2) | 3 years, cliff vesting (4) |
RS - Service |
| March 11, 2014 |
| 24,426 |
| $ | 54.35 | (1) | 3 years, 30%-30%-40% |
RS - Performance |
| March 11, 2014 |
| 27,928 |
| $ | 58.09 | (2) | 3 years, cliff vesting (4) |
RS |
| March 11, 2014 |
| 4,000 |
| $ | 54.35 | (1) | No vesting period (3) |
RS - Service |
| March 24, 2014 |
| 20,588 |
| $ | 53.64 | (1) | 5 years, 20% annually (5) |
RS - Service |
| July 15, 2014 |
| 1,767 |
| $ | 50.94 | (1) | 3 years, 30%-30%-40% |
RS - Performance |
| July 15, 2014 |
| 1,975 |
| $ | 55.70 | (2) | 3 years, cliff vesting (4) |
RS - Service |
| February 24, 2015 |
| 24,076 |
| $ | 61.68 | (1) | 3 years, 30%-30%-40% |
RS - Service |
| February 24, 2015 |
| 17,321 |
| $ | 61.68 | (1) | 5 years, 20% annually (5) |
RS - Performance |
| February 24, 2015 |
| 35,932 |
| $ | 63.73 | (2) | 3 years, cliff vesting (4) |
RS |
| February 24, 2015 |
| 4,000 |
| $ | 61.68 | (1) | No vesting period (3) |
RS - Service |
| July 1. 2015 |
| 1,546 |
| $ | 58.21 | (1) | 3 years, 30%-30%-40% |
RS - Performance |
| July 1. 2015 |
| 1,790 |
| $ | 61.45 | (2) | 3 years, cliff vesting (4) |
RS - Service |
| February 23, 2016 |
| 24,479 |
| $ | 56.07 | (1) | 3 years, 30%-30%-40% |
RS - Service |
| February 23, 2016 |
| 17,077 |
| $ | 56.07 | (1) | 5 years, 20% annually (5) |
RS - Performance |
| February 23, 2016 |
| 34,626 |
| $ | 60.72 | (2) | 3 years, cliff vesting (4) |
RS |
| February 23, 2016 |
| 4,000 |
| $ | 56.07 | (1) | No vesting period (3) |
RS |
| March 31, 2016 |
| 1,000 |
| $ | 57.06 | (1) | No vesting period (3) |
RS - Performance |
| April 1, 2016 |
| 10,000 |
| $ | 61.38 | (2) | 3 years, cliff vesting (4) |
RS - Service |
| February 22, 2017 |
| 19,120 |
| $ | 73.55 | (1) | 3 years, 30%-30%-40% |
RS - Service |
| February 22, 2017 |
| 16,106 |
| $ | 73.55 | (1) | 5 years, 20% annually (5) |
RS - Performance |
| February 22, 2017 |
| 29,829 |
| $ | 74.96 | (2) | 3 years, cliff vesting (4) |
RS |
| February 22, 2017 |
| 4,000 |
| $ | 73.55 | (1) | No vesting period (3) |
RS |
| July 1, 2017 |
| 1,000 |
| $ | 68.30 | (1) | No vesting period (3) |
(1) The fair value per share of the restricted stock grant is equal to the closing price of our common stock on the grant date.
(2) The fair value per share of the restricted stock grant is equal to the performance-based restricted stock award calculation.
(3) Board of Director members must maintain stock ownership equal to at least four times their annual cash retainer. This requirement must be met within five years of becoming a director.
(4)39
(3) The shares represent performance-based restricted shares award. Vesting of these shares is dependent upon the attainment of pre-established performance objectives, and any difference between shares granted and shares earned at the end of the performance period will be reported at the conclusion of the performance period.
(5)(4) The shares represent awards granted to non-executive employees and vest ratable over a five-year service period.true-up of previously awarded performance-based restricted share awards. The updated shares were calculated based on the attainment of pre-established performance objectives.
Reinsurance
Reinsurance
We reinsure with other insurance companies a portion of our potential liability under the policies we have underwritten, thereby protecting us against an unexpectedly large loss or a catastrophic occurrence that could produce large losses, primarily in our homeowners line of business. We use various software products to measure our exposure to catastrophe losses and the probable maximum loss to us for catastrophe losses such as hurricanes. The models include
38
estimates for our share of the catastrophe losses generated in the residual market for property insurance by the Massachusetts Property Insurance Underwriting Association (“FAIR Plan”).Plan. The reinsurance market has seen from the various software modelers, increases in the estimate of damage from hurricanes in the southern and northeast portions of the United States due to revised estimations of increased hurricane activity and increases in the estimation of demand surge in the periods following a significant event. We continue to manage and model our exposure and adjust our reinsurance programs as a result of the changes to the models. As of January 1, 2017,2022, we have purchased fourthree layers of excess catastrophe reinsurance providing $615,000$590,000 of coverage for property losses in excess of $50,000$75,000 up to a maximum of $665,000. Our reinsurers’ co-participation is 65.0%80.0% of $100,000$75,000 for the 1st layer, 80.0% of $280,000$250,000 for the 2nd layer, and 80.0% of $135,000$265,000 for the 3rd layer and 80.0% of $100,000 for the 4th layer. As a result of the changes to the models, and our revised reinsurance program, our catastrophe reinsurance in 20172022 protects us in the event of a “130-year“135-year storm” (that is, a storm of a severity expected to occur once in a 130-year135-year period). Swiss Re, our primary reinsurer, maintains an A.M. Best rating of “A+” (Superior). Most of our other reinsurers have an A.M. Best rating of “A+” (Superior) or “A” (Excellent).
We are a participant in CAR, a state-established body that runs the residual market reinsurance programs for commercial automobile insurance in Massachusetts under which premiums, expenses, losses and loss adjustment expenses on ceded business are shared by all insurers writing commercial automobile insurance in Massachusetts. We also participate in the Massachusetts Property Insurance Underwriting Association (“FAIR PlanPlan”), in which premiums, expenses, losses and loss adjustment expenses on homeowners business that cannot be placed in the voluntary market are shared by all insurers writing homeowners insurance in Massachusetts. The FAIR Plan buys reinsurance to reduce their exposure to catastrophe losses. On July 1, 2017,2022, the FAIR Plan purchased $2,000,000$1,800,000 of catastrophe reinsurance for property losses with retention of $100,000.
On December 15, 2015, the Company filed for arbitration with a reinsurer in regards to the reinsurance recoverable resulting from the 2015 winter storm losses that are admissible under our contract. The total amount of recoverable in dispute, which is based on our total incurred loss, was $20,918 and $22,838 as of December 31, 2017 and 2016, respectively. The change in the recovery is attributable to changes in the total incurred loss for reserve development. On January 8, 2018 the Company received a final order from the panel of arbitrators in which the reinsurer would pay the Company $9,200 for settlement of all paid and outstanding losses. The remaining unrecovered amount of $11,718 was expensed in 2017.
At December 31, 2017 and December 31, 2016, the reinsurance recoverable on paid and unpaid loss and loss adjustment expenses related to the 2015 snow event from all reinsuers was $675 and $31,701, respectively.
We also had $104,992$115,058 due from CAR comprising of loss and loss adjustment expense reserves, unearned premiums and reinsurance recoverables.
Effects of Inflation
Non-GAAP Measures
We do not believe
Management has included certain non-generally accepted accounting principles (“non-GAAP”) financial measures in presenting the Company’s results. Management believes that inflation has had a material effect on our consolidatedthese non-GAAP measures better explain the Company’s results of operations except insofarand allow for a more complete understanding of the underlying trends in the Company’s business. These measures should not be viewed as inflationa substitute for those determined in accordance with GAAP. In addition, our definitions of these items may affect interest rates.not be comparable to the definitions used by other companies.
Non-GAAP operating income and non-GAAP operating income per diluted share consist of our GAAP net income adjusted by the net realized gains on investments, net impairment losses on investments, changes in net unrealized gains on equity securities, credit loss benefit (expense) and taxes related thereto. Net income and earnings per diluted share are the GAAP financial measures that are most directly comparable to non-GAAP operating income and non-GAAP operating income per diluted share, respectively. A reconciliation of the GAAP financial measures to these non-GAAP measures is included in the financial highlights below.
3940
The following table shows certain of our selected financial results.
|
|
|
|
|
|
|
|
|
| |||||||||||
|
| Years Ended December 31, | ||||||||||||||||||
|
|
| 2017 |
| 2016 |
|
| 2015 | ||||||||||||
| | | | | | | | | | |||||||||||
|
| Years Ended December 31, | ||||||||||||||||||
|
|
| 2022 | | 2021 | | | 2020 | ||||||||||||
Direct written premiums |
| $ | 827,316 |
| $ | 811,559 |
| $ | 785,730 | | $ | 823,318 | | $ | 802,139 | | $ | 798,712 | ||
Net written premiums |
| $ | 781,054 |
| $ | 766,470 |
| $ | 746,180 | | $ | 773,735 | | $ | 764,526 | | $ | 763,537 | ||
Net earned premiums |
| $ | 774,420 |
| $ | 755,760 |
| $ | 738,164 | | | $ | 758,505 | | $ | 774,328 | | $ | 771,078 | |
Net investment income |
|
| 38,758 |
|
| 38,413 |
|
| 40,534 | | |
| 46,725 | |
| 44,135 | | | 41,045 | |
Earnings from partnership investments |
|
| 2,082 |
|
| 3,185 |
|
| 2,387 | | | | 12,484 | | | 19,829 | | | 6,901 | |
Net realized gains (losses) on investments |
|
| 6,036 |
|
| 5,559 |
|
| (469) | |||||||||||
Net impairment losses on investments |
|
| (256) |
|
| (798) |
|
| (796) | |||||||||||
Net realized gains on investments | | | | 9,190 | | | 14,885 | | | 957 | ||||||||||
Change in net unrealized (losses) gains on equity investments | | |
| (44,386) | |
| 16,130 | | | 10,449 | ||||||||||
Credit loss benefit (expense) | | |
| 14 | |
| 363 | | | (1,054) | ||||||||||
Commission income | | |
| 566 | |
| — | | | — | ||||||||||
Finance and other service income |
|
| 18,073 |
|
| 17,703 |
|
| 18,133 | | |
| 14,461 | |
| 15,241 | | | 16,872 | |
Total revenue |
|
| 839,113 |
|
| 819,822 |
|
| 797,953 | | |
| 797,559 | |
| 884,911 | | | 846,248 | |
Loss and loss adjustment expenses |
|
| 503,887 |
|
| 493,433 |
|
| 612,569 | | |
| 491,979 | |
| 461,727 | | | 404,556 | |
Underwriting, operating and related expenses |
|
| 248,436 |
|
| 233,017 |
|
| 213,939 | | |
| 245,145 | |
| 258,392 | | | 266,482 | |
Other expense | | |
| 330 | |
| — | | | — | ||||||||||
Interest expense |
|
| 90 |
|
| 90 |
|
| 90 | | |
| 524 | |
| 522 | | | 440 | |
Total expenses |
|
| 752,413 |
|
| 726,540 |
|
| 826,598 | | |
| 737,978 | |
| 720,641 | | | 671,478 | |
Income (loss) before income taxes |
|
| 86,700 |
|
| 93,282 |
|
| (28,645) | |||||||||||
Income tax expense (credit) |
|
| 24,313 |
|
| 28,697 |
|
| (14,792) | |||||||||||
Net income (loss) |
| $ | 62,387 |
| $ | 64,585 |
| $ | (13,853) | |||||||||||
Earnings (loss) per weighted average common share: |
|
|
|
|
|
|
|
|
| |||||||||||
Income before income taxes | | |
| 59,581 | |
| 164,270 | | | 174,770 | ||||||||||
Income tax expense | | |
| 13,020 | |
| 33,560 | | | 36,559 | ||||||||||
Net income | | | $ | 46,561 | | $ | 130,710 | | $ | 138,211 | ||||||||||
Earnings per weighted average common share: | | | | | | | | | | |||||||||||
Basic |
| $ | 4.13 |
| $ | 4.29 |
| $ | (0.93) | | $ | 3.17 | | $ | 8.85 | | $ | 9.25 | ||
Diluted |
| $ | 4.10 |
| $ | 4.27 |
| $ | (0.93) | | $ | 3.15 | | $ | 8.80 | | $ | 9.18 | ||
Cash dividends paid per common share |
| $ | 3.00 |
| $ | 2.80 |
| $ | 2.80 | | $ | 3.60 | | $ | 3.60 | | $ | 3.60 | ||
| | | | | | | | | | |||||||||||
Reconciliation of Net Income to Non-GAAP Operating Income: | | | | | | | | | | |||||||||||
| | | | | | | | | | |||||||||||
Net income | | $ | 46,561 | | $ | 130,710 | | $ | 138,211 | |||||||||||
Exclusions from net income: | | | | | | | | | | |||||||||||
Net realized gains on investments | | | (9,190) | | | (14,885) | | | (957) | |||||||||||
Change in net unrealized (losses) gains on equity investments | | | 44,386 | | | (16,130) | | | (10,449) | |||||||||||
Credit loss (benefit) expense | | | (14) | | | (363) | | | 1,054 | |||||||||||
Income tax benefit | | | (7,388) | | | 6,589 | | | 2,174 | |||||||||||
Non-GAAP Operating income | | $ | 74,355 | | $ | 105,921 | | $ | 130,033 | |||||||||||
| | | | | | | | | | |||||||||||
Net income per diluted share | | $ | 3.15 | | $ | 8.80 | | $ | 9.18 | |||||||||||
Exclusions from net income: | | | | | | | | | | |||||||||||
Net realized gains on investments | | | (0.62) | | | (1.00) | | | (0.06) | |||||||||||
Change in net unrealized losses (gains) on equity investments | | | 3.02 | | | (1.08) | | | (0.69) | |||||||||||
Credit loss (benefit) expense | | | - | | | (0.02) | | | 0.07 | |||||||||||
Income tax benefit | | | (0.50) | | | 0.44 | | | 0.14 | |||||||||||
Non-GAAP Operating income per diluted share | | $ | 5.05 | | $ | 7.14 | | $ | 8.64 | |||||||||||
YEAR ENDED DECEMBER 31, 20172022 COMPARED TO YEAR ENDED 2016DECEMBER 31, 2021
Direct Written Premiums. Direct written premiums for the year ended December 31, 20172022 increased by $15,757,$21,179, or 1.9%2.6%, to $827,316$823,318 from $811,559$802,139 for the comparable 20162021 period. The 2017 increase occurred in our private passenger, commercial automobile and homeowners business lines which experienced increases of 3.3%, 2.3% and 4.0% respectively, in averagedirect written premium per exposure. Written exposures increased by 5.0% in our commercial automobile lineis the result of new business production, improved retention, and decreased by 3.0% in our private passenger automobile line and 1.0% in our homeowners line, respectively.rate increases.
Net Written Premiums. Net written premiums for the year ended December 31, 20172022 increased by $14,584,$9,209, or 1.9%1.2%, to $781,054$773,735 from $766,470$764,526 for the comparable 20162021 period. The 2017The 2022 increase was primarily due to the factors
that increased direct written premiums.
41
Net Earned Premiums. Net earned premiums for the year ended December 31, 2017 increased2022 decreased by $18,660,$15,823, or 2.5%2.0%, to $774,420$758,505 from $755,760$774,328 for the comparable 20162021 period. The 2017 increase was primarily due to the factors that increased direct written premiums.
40
The effect of reinsurance on net written and net earned premiums is presented in the following table.
|
|
|
|
| ||||||||
|
|
| Years Ended December 31, | |||||||||
|
| 2017 |
| 2016 | ||||||||
| | | | | | |||||||
| | | Year Ended December 31, | |||||||||
|
| 2022 |
| 2021 | ||||||||
Written Premiums |
|
|
|
|
| | | | | | | |
Direct |
| $ | 827,316 |
| $ | 811,559 | | $ | 823,318 | | $ | 802,139 |
Assumed |
|
| 34,214 |
|
| 30,424 | |
| 28,835 | |
| 31,359 |
Ceded |
|
| (80,476) |
|
| (75,513) | |
| (78,418) | |
| (68,972) |
Net written premiums |
| $ | 781,054 |
| $ | 766,470 | | $ | 773,735 | | $ | 764,526 |
|
|
|
|
| ||||||||
| | | | | | |||||||
Earned Premiums |
|
|
|
| | | | | | |||
Direct |
| $ | 818,804 |
| $ | 796,366 | | $ | 803,289 | | $ | 811,329 |
Assumed |
|
| 32,502 |
|
| 29,544 | |
| 28,976 | |
| 30,583 |
Ceded |
|
| (76,886) |
|
| (70,150) | |
| (73,760) | |
| (67,584) |
Net earned premiums |
| $ | 774,420 |
| $ | 755,760 | | $ | 758,505 | | $ | 774,328 |
Net Investment Income. Net investment income for the year ended December 31, 20172022 increased by $345,$2,590, or 0.9%5.9%, to $38,758$46,725 from $38,413$44,135 for the comparable 20162021 period. The increase is a result of increases in interest rates on our fixed maturity portfolio as compared to the prior year. Net effective annual yield on the investment portfolio was 3.1% for each of the years ended December 31, 2017 and December 31, 2016. Our duration was 3.7 years at December 31, 2017, compared to 4.3 years at December 31, 2016.
Earnings from Partnership Investments. Earnings from partnership investments were $2,0823.2% for the year ended December 31, 20172022 compared to $3,1853.0% for comparable 2021 period. Our duration was 3.8 years at December 31, 2022, compared to 3.6 years at December 31, 2021.
Earnings from Partnership Investments. Earnings from partnership investments were $12,484 for the year ended December 31, 2016. 2022 compared to $19,829 for the year ended December 31, 2021. The 2022 earnings reflect a decrease in investment appreciation and timing of cash proceeds received compared to the prior year. Timing and generation of these returns on capital can vary based on the results and transactions of the underlying partnerships.
Net Realized Gains on Investments. Net realized gains on investments were $6,036$9,190 for the year ended December 31, 20172022 compared to $5,559$14,885 for the comparable 20162021 period.
The gross unrealized gains and losses on investments in fixed maturity securities, including redeemable preferred stocks that have characteristics of fixed maturities, equity securities, including interests in mutual funds, and other invested assets were as follows:
| | | | | | | | | | | | | | | |
| | As of December 31, 2022 | |||||||||||||
| | | | | | | | | | | | | | | |
|
| Cost or |
| Allowance for |
| Gross Unrealized |
| Estimated | |||||||
| | Amortized | | Expected Credit | | | | | | Fair | |||||
| | Cost | | Losses | | Gains | | Losses (3) | | Value | |||||
U.S. Treasury securities | | $ | 1,825 | | $ | — | | $ | — | | $ | (156) | | $ | 1,669 |
Obligations of states and political subdivisions | |
| 57,319 | |
| — | |
| 282 | |
| (3,532) | |
| 54,069 |
Residential mortgage-backed securities (1) | |
| 259,878 | |
| — | |
| 385 | |
| (25,761) | |
| 234,502 |
Commercial mortgage-backed securities | |
| 156,303 | |
| — | |
| 107 | |
| (16,479) | |
| 139,931 |
Other asset-backed securities | |
| 74,160 | |
| — | |
| — | |
| (5,429) | |
| 68,731 |
Corporate and other securities | |
| 603,294 | |
| (678) | |
| 740 | |
| (52,103) | |
| 551,253 |
Subtotal, fixed maturity securities | |
| 1,152,779 | |
| (678) | |
| 1,514 | |
| (103,460) | |
| 1,050,155 |
Equity securities (2) | |
| 231,444 | |
| — | |
| 31,857 | |
| (23,146) | |
| 240,155 |
Other invested assets (4) | |
| 112,850 | |
| — | |
| — | |
| — | |
| 112,850 |
Totals | | $ | 1,497,073 | | $ | (678) | | $ | 33,371 | | $ | (126,606) | | $ | 1,403,160 |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of December 31, 2017 | |||||||||||||
|
|
|
|
|
|
|
| Gross Unrealized Losses (3) |
|
|
| ||||
|
| Cost or |
| Gross |
| Non-OTTI |
| OTTI |
| Estimated | |||||
|
| Amortized |
| Unrealized |
| Unrealized |
| Unrealized |
| Fair | |||||
|
| Cost |
| Gains |
| Losses |
| Losses (4) |
| Value | |||||
U.S. Treasury securities |
| $ | 1,809 |
| $ | — |
| $ | (18) |
| $ | — |
| $ | 1,791 |
Obligations of states and political subdivisions |
|
| 391,806 |
|
| 12,244 |
|
| (966) |
|
| — |
|
| 403,084 |
Residential mortgage-backed securities (1) |
|
| 223,257 |
|
| 2,352 |
|
| (2,843) |
|
| — |
|
| 222,766 |
Commercial mortgage-backed securities |
|
| 39,268 |
|
| 415 |
|
| (314) |
|
| — |
|
| 39,369 |
Other asset-backed securities |
|
| 72,665 |
|
| 173 |
|
| (225) |
|
| — |
|
| 72,613 |
Corporate and other securities |
|
| 427,892 |
|
| 6,962 |
|
| (2,451) |
|
| — |
|
| 432,403 |
Subtotal, fixed maturity securities |
|
| 1,156,697 |
|
| 22,146 |
|
| (6,817) |
|
| — |
|
| 1,172,026 |
Equity securities (2) |
|
| 90,481 |
|
| 21,995 |
|
| (609) |
|
| — |
|
| 111,867 |
Other invested assets (5) |
|
| 23,162 |
|
| — |
|
| — |
|
| — |
|
| 23,162 |
Totals |
| $ | 1,270,340 |
| $ | 44,141 |
| $ | (7,426) |
| $ | — |
| $ | 1,307,055 |
(1) Residential mortgage-backed securities consists of obligations of U.S. Government agencies including collateralized mortgage obligations issued, guaranteed and/or insured by the following issuers: Government National Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage Association (FNMA) and the Federal Home Loan Bank (FHLB).
(2) Equity securities include common stock, preferred stock, mutual funds and interests in mutual funds held to fund the Company’s executive deferred compensation plan.
42
(3) Our investment portfolio included 3671,195 securities in an unrealized loss position at December 31, 2017.2022.
(4) Amounts in this column represent other-than-temporary impairment (“OTTI”) recognized in accumulated other comprehensive income.
(5) Other invested assets are accounted for under the equity method which approximates fair value.
41
The composition of our fixed income security portfolio by Moody’s rating was as follows:
|
|
|
|
|
| |||||||
|
| As of December 31, 2017 |
| |||||||||
|
| Estimated |
|
|
| |||||||
|
| Fair Value |
| Percent |
| |||||||
| | | | | | |||||||
| | As of December 31, 2022 |
| |||||||||
|
| Estimated |
|
|
| |||||||
| | Fair Value | | Percent |
| |||||||
U.S. Treasury securities and obligations of U.S. Government agencies |
| $ | 222,766 |
| 19.0 | % |
| $ | 234,152 |
| 22.3 | % |
Aaa/Aa |
| 411,794 |
| 35.1 |
| | 237,191 |
| 22.6 | | ||
A |
| 239,015 |
| 20.4 |
| | 201,943 |
| 19.2 | | ||
Baa |
| 142,176 |
| 12.1 |
| | 202,763 |
| 19.3 | | ||
Ba |
| 51,205 |
| 4.4 |
| | 61,619 |
| 5.9 | | ||
B |
| 75,673 |
| 6.5 |
| | 93,633 |
| 8.9 | | ||
Caa/Ca |
| 7,087 |
| 0.6 |
| | 4,489 |
| 0.4 | | ||
D |
| 248 |
| - |
| |||||||
Not rated |
| 22,062 |
| 1.9 |
| | | 14,365 |
| 1.4 | | |
Total |
| $ | 1,172,026 |
| 100.0 | % | | $ | 1,050,155 |
| 100.0 | % |
|
|
|
|
|
|
| ||||||
|
| | | | | | ||||||
Ratings are generally assigned upon the issuance of the securities and are subject to revision on the basis of ongoing evaluations. Ratings in the table are as of the date indicated.
As of December 31, 2017,2022, our portfolio of fixed maturity investments was principally comprised of investment grade corporate fixed maturity securities, U.S. government and agency securities, and asset-backed securities. The portion of our non-investment grade portfolio of fixed maturity investments is primarily comprised of variable rate secured and senior bank loans and high yield bonds.
The following table illustrates the gross unrealized losses included in our investment portfolio and the fair value of those securities, aggregated by investment category. The table also illustratespresents the length of time that they have been in a continuous unrealized loss position as of December 31, 2017.2022.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
| As of December 31, 2017 | ||||||||||||||||||||||||||||||||||
|
| Less than 12 Months |
| 12 Months or More |
| Total | ||||||||||||||||||||||||||||||
|
| Estimated |
| Unrealized |
| Estimated |
| Unrealized |
| Estimated |
| Unrealized | ||||||||||||||||||||||||
|
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| Fair Value |
| Losses | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||
| | As of December 31, 2022 | ||||||||||||||||||||||||||||||||||
| | Less than 12 Months | | 12 Months or More | | Total | ||||||||||||||||||||||||||||||
|
| Estimated |
| Unrealized |
| Estimated |
| Unrealized |
| Estimated |
| Unrealized | ||||||||||||||||||||||||
| | Fair Value | | Losses | | Fair Value | | Losses | | Fair Value | | Losses | ||||||||||||||||||||||||
U.S. Treasury securities |
| $ | 1,791 |
| $ | 18 |
| $ | — |
| $ | — |
| $ | 1,791 |
| $ | 18 | | $ | 1,669 | | $ | 156 | | $ | — | | $ | — | | $ | 1,669 | | $ | 156 |
Obligations of states and political subdivisions |
|
| 19,603 |
|
| 152 |
|
| 30,018 |
|
| 814 |
|
| 49,621 |
|
| 966 | |
| 34,178 | |
| 2,504 | |
| 3,072 | |
| 1,028 | |
| 37,250 | |
| 3,532 |
Residential mortgage-backed securities |
|
| 126,713 |
|
| 1,724 |
|
| 39,638 |
|
| 1,119 |
|
| 166,351 |
|
| 2,843 | |
| 140,855 | |
| 12,254 | |
| 70,956 | |
| 13,507 | |
| 211,811 | |
| 25,761 |
Commercial mortgage-backed securities |
|
| 5,457 |
|
| 30 |
|
| 8,027 |
|
| 284 |
|
| 13,484 |
|
| 314 | |
| 110,073 | |
| 11,632 | |
| 24,653 | |
| 4,847 | |
| 134,726 | |
| 16,479 |
Other asset-backed securities |
|
| 25,769 |
|
| 167 |
|
| 18,270 |
|
| 58 |
|
| 44,039 |
|
| 225 | |
| 41,113 | | | 2,358 | | | 27,618 | | | 3,071 | | | 68,731 | | | 5,429 |
Corporate and other securities |
|
| 94,863 |
|
| 1,189 |
|
| 36,440 |
|
| 1,262 |
|
| 131,303 |
|
| 2,451 | |
| 386,401 | |
| 28,048 | |
| 131,046 | |
| 24,055 | |
| 517,447 | |
| 52,103 |
Subtotal, fixed maturity securities |
|
| 274,196 |
|
| 3,280 |
|
| 132,393 |
|
| 3,537 |
|
| 406,589 |
|
| 6,817 | |
| 714,289 | |
| 56,952 | |
| 257,345 | |
| 46,508 | |
| 971,634 | |
| 103,460 |
Equity securities |
|
| 4,730 |
|
| 361 |
|
| 2,420 |
|
| 248 |
|
| 7,150 |
|
| 609 | |
| 116,881 | |
| 21,198 | |
| 6,209 | |
| 1,948 | |
| 123,090 | |
| 23,146 |
Total temporarily impaired securities |
| $ | 278,926 |
| $ | 3,641 |
| $ | 134,813 |
| $ | 3,785 |
| $ | 413,739 |
| $ | 7,426 | | $ | 831,170 | | $ | 78,150 | | $ | 263,554 | | $ | 48,456 | | $ | 1,094,724 | | $ | 126,606 |
We reviewedThe Company’s analysis of its fixed maturity portfolio at December 31, 2022 concluded that $678 of unrealized losses were due to credit factors and were recorded as an allowance for expected credit losses at December 31, 2022, compared to $691 at December 31, 2021. The Company concluded that outside of the securities that were recognized as credit impaired, the unrealized losses in ourrecorded on the fixed income and equitymaturity portfolio as of December 31, 2017 for potential other-than-temporary asset impairments. The Company held two debt securities at December 31, 2017 with a material (20% or greater) unrealized loss for four or more consecutive quarters that additionally had certain qualitative factors that led to an impairment charge. As a result of our analysis, the Company recognized OTTI of $256 for the year ended2022 and December 31, 2017, which consisted entirely2021 resulted from fluctuations in market interest rates and other temporary market conditions as opposed to fundamental changes in the credit quality of credit losses relatedthe issuers of such securities. Based upon the analysis performed, the Company’s decision to fixed maturity securities.hold these securities, the Company’s current level of liquidity and our history of positive operating cash flows, management believes it is more likely than not that it will not be required to sell any of its securities before the anticipated recovery in the fair value to its amortized cost basis.
Specific qualitative analysis was also performed for securities appearing on our “Watch List,” if any.
Qualitative analysis considered such factors as the financial condition and the near term prospects of the issuer, whether the debtor is current on its contractually obligated interest and principal payments, changes to the rating of the security by a rating agency and the historical volatility of the fair value of the security.
Of the $7,426 gross unrealized losses as of December 31, 2017, $984 relates to obligations of U.S. Treasuries, states and political subdivisions. The remaining $6,442 of gross unrealized losses relates primarily to holdings of investment grade asset-backed, corporate, other fixed maturity and equity securities.
4243
The majority of unrealized losses recorded on the investment portfolio at December 31, 20172022 resulted from fluctuations in market interest rates and other temporary market conditions as opposed to fundamental changes in the credit quality of the issuers of such securities. Given our current level of liquidity, the fact that we do not intend to sell these securities, and that it is more likely than not that we will not be required to sell these securities prior to recovery of the cost basis of these securities, these decreases in values are viewed as being temporary.
For information regarding fair value measurements of our investment portfolio, refer to Item 8—Financial Statements and Supplementary Data, Note 14,16, Fair Value of Financial Instruments, of this Form 10-K.
Net Impairment Losses on Investments.Net impairment losses on investments were $256Commission Income: Commission income includes revenues from new and $798 for the year ended December 31, 2017 and December 31, 2016renewal commissions paid by insurance carriers, which we recognize when earned.
Finance and Other Service Income.Finance and other service income include revenues from premium installment charges, which we recognize when earned, and other miscellaneous income and fees. Finance and other service income increased by $370, or 2.1%, to $18,073 for the year ended December 31, 2017 from $17,703 for the comparable 2016 period.
Losses and Loss Adjustment Expenses. Losses and loss adjustment expenses incurred for the year ended December 31, 2017 increased by $10,454, or 2.1%, to $503,887 from $493,433 for the comparable 2016 period.
Our GAAP loss ratio for the year ended December 31, 2017 and 2016 was 65.1% and 65.3%, respectively. Our GAAP loss ratio excluding loss adjustment expenses was 57.5% and 56.8% for the year ended December 31, 2017 and 2016, respectively. Total prior year favorable development included in the pre-tax results for the year ended December 31, 2017 was $41,784, compared to $45,448, for the comparable 2016 period.
Underwriting, Operating and Related Expenses. Underwriting, operating and related expenses for the year ended December 31, 2017 increased by $15,419, or 6.6%, to $248,436 from $233,017 for the comparable 2016 period. Our GAAP expense ratio for the year ended December 31, 2017 increased to 32.1% from 30.8% for the comparable 2016 period. The increase in underwriting, operating and related expenses and the expense ratio is attributable to increases in contingent commissions and nonrecurring legal fees related to reinsurance arbitration.
Interest Expenses. Interest expense was $90 for each of the years ended December 31, 2017 and 2016. The credit facility commitment fee included in interest expense was $75 for each of the years ended December 31, 2017 and 2016.
Income Tax Expense (Credit). Our effective tax rates were 28.0% and 30.8% for the years ended December 31, 2017 and 2016, respectively. The effective rate in 2017 was lower than the statutory rate of 35.0% primarily due to adjustments for tax-exempt investment income and the impact of the re-measurement of the net deferred tax liability as a result of the enactment of the TCJA.
On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “TCJA”) was enacted, which significantly amends the Internal Revenue Code of 1986. The TCJA, among other things, reduces the corporate tax rate from a statutory rate of 35% to 21%, imposes additional limitations on net operating losses and executive compensation, allows for the full expensing of certain capital expenditures, and enacts other changes impacting the insurance industry. The impact of the tax rate change has been recorded through the Statement of Operations for the year ended December 31, 2017.
SEC Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (which we refer to as SAB 118) describes three scenarios associated with a company’s status of accounting for income tax reform. Under the SAB 118 guidance, we have determined that while our accounting for the following elements are incomplete, we are able to make reasonable estimates for certain effects of tax reform. As of the date of this Annual Report on Form 10-K, we are continuing to evaluate the accounting impactions of the TCJA as we continue to assemble and analyze all the information required to prepare and analyze these effects and await additional guidance from the U.S. Treasury Department, Internal Revenue Service or other standard-setting bodies. Additionally, we continue to analyze other information and regulatory guidance and accordingly we may record additional provisional amounts or adjustments to provisional amounts in future periods.
43
Net Income. Net income for the year ended December 31, 2017 was $62,387 compared to a net income of $64,585 for the comparable 2016 period.
The TCJA modified the provisions applicable to the determination of the tax basis of unpaid loss reserves. These modifications impact the payment pattern and applicable interest rate. The TCJA instructed the Treasury to provide discount factors and other guidance necessary to determine the necessary transition adjustment. This information has not been released; accordingly, we have applied the law existing prior to the enactment of the TCJA. These provisions would have no effect on the net deferred tax liability as of December 31, 2017 or the total tax expense for the year ended December 31, 2017. We estimate that the loss reserve change will have no impact on our results of operation.
YEAR ENDED DECEMBER 31, 2016 COMPARED TO YEAR ENDED 2015
Direct Written Premiums. Direct written premiums for the year ended December 31, 2016 increased by $25,829, or 3.3%, to $811,559 from $785,730 for the comparable 2015 period. The 2016 increases occurred primarily in our commercial automobile and homeowners business lines which experienced increases of 7.5% and 7.4%, respectively, in average written premium per exposure. Written exposures increased by 3.8% and decreased by 0.5% in our commercial automobile and homeowners lines, respectively. Our private passenger line also experienced an increase of 3.1% in average written premium per exposure.
Net Written Premiums. Net written premiums for the year ended December 31, 2016 increased by $20,290, or 2.7%, to $766,470 from $746,180 for the comparable 2015 period. The 2016 increase was primarily due to the factors that increased direct written premiums.
Net Earned Premiums. Net earned premiums for the year ended December 31, 2016 increased by $17,596, or 2.4%, to $755,760 from $738,164 for the comparable 2015 period. The 2016 increase was primarily due to the factors that increased direct written premiums.
The effect of reinsurance on net written and net earned premiums is presented in the following table.
|
|
|
|
|
|
|
|
|
| Years Ended December 31, |
| ||||
|
| 2016 |
| 2015 |
| ||
Written Premiums |
|
|
|
|
|
|
|
Direct |
| $ | 811,559 |
| $ | 785,730 |
|
Assumed |
|
| 30,424 |
|
| 28,322 |
|
Ceded |
|
| (75,513) |
|
| (67,872) |
|
Net written premiums |
| $ | 766,470 |
| $ | 746,180 |
|
|
|
|
|
|
|
|
|
Earned Premiums |
|
|
|
|
|
|
|
Direct |
| $ | 796,366 |
| $ | 776,633 |
|
Assumed |
|
| 29,544 |
|
| 25,819 |
|
Ceded |
|
| (70,150) |
|
| (64,288) |
|
Net earned premiums |
| $ | 755,760 |
| $ | 738,164 |
|
Net Investment Income. Net investment income for the year ended December 31, 2016 decreased by $2,121, or 5.2%, to $38,413 from $40,534 for the comparable 2015 period. The decrease is a result of changes in the average invested asset balance as a result of investment proceeds used in the payment of claims resulting from the 2015 winter events and increases in fixed maturity amortization. Net effective annual yield on the investment portfolio was 3.1% for the year ended December 31, 2016 compared to 3.3% for the year ended December 31, 2015. Our duration was 4.3 years at December 31, 2016 up from 4.1 years at December 31, 2015.
44
Earnings from Partnership Investments. Earnings from partnership investments were $3,185 for the year ended December 31, 2016 compared to $2,387 for the year ended December 31, 2015.
Net Realized Gains (Losses) on Investments. Net realized gains on investments were $5,559 for the year ended December 31, 2016 compared to net realized losses on investments of $469 for the comparable 2015 period. The increase is a result of sales of equity securities during 2016.
The gross unrealized gains and losses on investments in fixed maturity securities, equity securities, including interests in mutual funds, and other invested assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of December 31, 2016 | |||||||||||||
|
|
|
|
|
|
|
| Gross Unrealized Losses (3) |
|
|
| ||||
|
| Cost or |
| Gross |
| Non-OTTI |
| OTTI |
| Estimated | |||||
|
| Amortized |
| Unrealized |
| Unrealized |
| Unrealized |
| Fair | |||||
|
| Cost |
| Gains |
| Losses |
| Losses (4) |
| Value | |||||
U.S. Treasury securities |
| $ | 302 |
| $ | — |
| $ | — |
| $ | — |
| $ | 302 |
Obligations of states and political subdivisions |
|
| 382,811 |
|
| 11,534 |
|
| (3,912) |
|
| — |
|
| 390,433 |
Residential mortgage-backed securities (1) |
|
| 252,031 |
|
| 3,256 |
|
| (2,656) |
|
| — |
|
| 252,631 |
Commercial mortgage-backed securities |
|
| 35,695 |
|
| 191 |
|
| (432) |
|
| — |
|
| 35,454 |
Other asset-backed securities |
|
| 70,411 |
|
| 89 |
|
| (90) |
|
| — |
|
| 70,410 |
Corporate and other securities |
|
| 401,413 |
|
| 7,070 |
|
| (3,444) |
|
| — |
|
| 405,039 |
Subtotal, fixed maturity securities |
|
| 1,142,663 |
|
| 22,140 |
|
| (10,534) |
|
| — |
|
| 1,154,269 |
Equity securities (2) |
|
| 92,326 |
|
| 15,504 |
|
| (2,735) |
|
| — |
|
| 105,095 |
Other invested assets (5) |
|
| 21,142 |
|
| — |
|
| — |
|
| — |
|
| 21,142 |
Totals |
| $ | 1,256,131 |
| $ | 37,644 |
| $ | (13,269) |
| $ | — |
| $ | 1,280,506 |
(1) Residential mortgage-backed securities consists of obligations of U.S. Government agencies including collateralized mortgage obligations issued, guaranteed and/or insured by the following issuers: Government National Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage Association (FNMA) and the Federal Home Loan Bank (FHLB).
(2) Equity securities include interests in mutual funds held to fund the Company’s executive deferred compensation plan.
(3) Our investment portfolio included 343 securities in an unrealized loss position at December 31, 2016.
(4) Amounts in this column represent other-than-temporary impairment (“OTTI”) recognized in accumulated other comprehensive income.
(5) Other invested assets are accounted for under the equity method which is used as a proxy for fair value.
The composition of our fixed income security portfolio by Moody’s rating was as follows:
|
|
|
|
|
|
|
|
| As of December 31, 2016 |
| |||
|
| Estimated |
|
|
| |
|
| Fair Value |
| Percent |
| |
U.S. Treasury securities and obligations of U.S. Government agencies |
| $ | 252,989 |
| 22.0 | % |
Aaa/Aa |
|
| 390,432 |
| 33.8 |
|
A |
|
| 237,787 |
| 20.6 |
|
Baa |
|
| 124,340 |
| 10.8 |
|
Ba |
|
| 40,667 |
| 3.5 |
|
B |
|
| 68,449 |
| 5.9 |
|
Caa |
|
| 11,072 |
| 1.0 |
|
C |
|
| 416 |
| - |
|
D |
|
| 355 |
| - |
|
Not rated |
|
| 27,762 |
| 2.4 |
|
Total |
| $ | 1,154,269 |
| 100.0 | % |
Ratings are generally assigned upon the issuance of the securities and are subject to revision on the basis of ongoing evaluations. Ratings in the table are as of the date indicated.
As of December 31, 2016, our portfolio of fixed maturity investments was principally comprised of investment grade corporate fixed maturity securities, U.S. government and agency securities, and asset-backed securities. The portion of our non-investment grade portfolio of fixed maturity investments is primarily comprised of variable rate secured and senior bank loans and high yield bonds. We have no exposure to European sovereign debt.
45
The following table illustrates the gross unrealized losses included in our investment portfolio and the fair value of those securities, aggregated by investment category. The table also illustrates the length of time that they have been in a continuous unrealized loss position as of December 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of December 31, 2016 | ||||||||||||||||
|
| Less than 12 Months |
| 12 Months or More |
| Total | ||||||||||||
|
| Estimated |
| Unrealized |
| Estimated |
| Unrealized |
| Estimated |
| Unrealized | ||||||
|
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| Fair Value |
| Losses | ||||||
U.S. Treasury securities |
| $ | 301 |
| $ | — |
| $ | — |
| $ | — |
| $ | 301 |
| $ | — |
Obligations of states and political subdivisions |
|
| 79,960 |
|
| 3,912 |
|
| — |
|
| — |
|
| 79,960 |
|
| 3,912 |
Residential mortgage-backed securities |
|
| 182,265 |
|
| 2,476 |
|
| 4,595 |
|
| 180 |
|
| 186,860 |
|
| 2,656 |
Commercial mortgage-backed securities |
|
| 15,521 |
|
| 432 |
|
| — |
|
| — |
|
| 15,521 |
|
| 432 |
Other asset-backed securities |
|
| 31,869 |
|
| 90 |
|
| — |
|
| — |
|
| 31,869 |
|
| 90 |
Corporate and other securities |
|
| 118,625 |
|
| 2,044 |
|
| 17,531 |
|
| 1,400 |
|
| 136,156 |
|
| 3,444 |
Subtotal, fixed maturity securities |
|
| 428,541 |
|
| 8,954 |
|
| 22,126 |
|
| 1,580 |
|
| 450,667 |
|
| 10,534 |
Equity securities |
|
| 6,364 |
|
| 315 |
|
| 14,841 |
|
| 2,420 |
|
| 21,205 |
|
| 2,735 |
Total temporarily impaired securities |
| $ | 434,905 |
| $ | 9,269 |
| $ | 36,967 |
| $ | 4,000 |
| $ | 471,872 |
| $ | 13,269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016, we held insured investment securities of approximately $4,578, which represented approximately 0.4% of our total investments. Approximately $232 of these securities are pre-refunded, meaning that funds have been set aside in escrow to satisfy the future interest and principal obligations of the bond.
The following table shows our insured investment securities that are backed by financial guarantors including pre-refunded securities as of December 31, 2016. We do not have any direct investment holdings in a financial guarantee insurance company.
|
|
|
|
|
|
|
|
|
|
|
| As of December 31, 2016 | |||||||
|
|
|
|
|
|
| Exposure Net | ||
|
|
|
|
| Pre-refunded |
| of Pre-refunded | ||
|
| Total |
| Securities |
| Securities | |||
Municipal bonds |
|
|
|
|
|
|
|
|
|
Ambac Assurance Corporation |
| $ | - |
| $ | - |
| $ | - |
Financial Guaranty Insurance Company |
|
| 232 |
|
| 232 |
|
| - |
Assured Guaranty Municipal Corporation |
|
| - |
|
| - |
|
| - |
National Public Finance Guaranty Corporation |
|
| 4,346 |
|
| - |
|
| 4,346 |
Total |
| $ | 4,578 |
| $ | 232 |
| $ | 4,346 |
The Moody's ratings of our insured investments held at December 31, 2016 are essentially the same with or without the investment guarantees.
We reviewed the unrealized losses in our fixed income and equity portfolio as of December 31, 2016 for potential other-than-temporary asset impairments. The Company held five debt securities at December 31, 2016 with a material (20.0% or greater) unrealized loss for four or more consecutive quarters that additionally had certain qualitative factors that led to an impairment charge. As a result of our analysis, the Company recognized OTTI of $798 for the year ended December 31, 2016, which consisted entirely of credit losses related to fixed maturity securities.
Specific qualitative analysis was performed for securities appearing on our “Watch List,” if any. Qualitative analysis considered such factors as the financial condition and the near term prospects of the issuer, whether the debtor is current on its contractually obligated interest and principal payments, changes to the rating of the security by a rating agency and the historical volatility of the fair value of the security.
Of the $13,269 gross unrealized losses as of December 31, 2016, $3,912 relates to obligations of U.S. Treasuries, states and political subdivisions. The remaining $9,357 of gross unrealized losses relates primarily to holdings of investment grade asset-backed, corporate, other fixed maturity and equity securities.
46
The majority of the unrealized losses recorded on the investment portfolio at December 31, 2016 resulted from fluctuations in market interest rates and other temporary market conditions as opposed to fundamental changes in the credit quality of the issuers of such securities. Given our current level of liquidity, the fact that we do not intend to sell these securities, and that it is more likely than not that we will not be required to sell these securities prior to recovery of the cost basis of these securities, these decreases in values are viewed as being temporary.
For information regarding fair value measurements of our investment portfolio, refer to Item 8—Financial Statements and Supplementary Data, Note 14, Fair Value of Financial Instruments, of this Form 10-K.
Net Impairment Losses on Investments. Net impairment losses on investments were $798 and $796 for the year ended December 31, 2016 and December 31, 2015.
Finance and Other Service Income. Finance and other service income includeincludes revenues from premium installment charges, which we recognize when earned, and other miscellaneous income and fees. Finance and other service income decreased by $430,$780, or 2.4%5.1%, to $17,703$14,461 for the year ended December 31, 20162022 from $18,133$15,241 for the comparable 20152021 period. The decrease is primarily driven by a change in our late fee assessment policy.
Losses and Loss Adjustment Expenses. Losses and loss adjustment expenses incurred for the year ended December 31, 2016 decreased2022 increased by $119,136,$30,252, or 19.4%6.6%, to $493,433$491,979 from $612,569$461,727 for the comparable 2015 period2021 period. The increase in losses is due to the winter snowfall catastrophea return of pre-pandemic frequency in 2015. our private passenger automobile line of business and current market conditions including inflation and supply chain delays.
Our GAAP loss ratio for the years ended December 31, 20162022 and 2015 was 65.3%2021 were 64.9% and 83.0%59.6%, respectively. Our GAAP loss ratio excluding loss adjustment expenses was 56.8%56.0% and 72.9%50.0% for the years ended December 31, 20162022 and 2015,2021, respectively. Total prior year favorable development included in the pre-tax results for the year ended December 31, 20162022 was $45,448,$57,279, compared to $30,313,$53,673, for the comparable 20152021 period. The increase in the prior year favorable development in 2022 is primarily related to the reversal of $6,500 legal expense reserve during the second quarter of 2022.
Underwriting, Operating and Related Expenses. Underwriting, operating and related expenses for the year ended December 31, 2016 increased2022 decreased by $19,078,$13,247, or 8.9%5.1%, to $233,017$245,145 from $213,939$258,392 for the comparable 20152021 period. Our GAAP expense ratiosratio for the year ended December 31, 2016 increased2022 decreased to 30.8%32.3% from 29.0%33.4% for the comparable 20152021 period. The increase2022 decrease is driven by a decrease in underwriting,contingent commission expense.
Other Expense: Other expense includes the operating and related expense and the expense ratio is attributable to increases in contingent commissions and bonus compensation.expenses associated with SNIA.
Interest Expenses.Expense. Interest expense was $90$524 and $522 for each of the years ended December 31, 20162022 and 2015.2021, respectively. Interest expense primarily relates to the borrowing from the FHLB as noted within Item 8 – Financial Statements and Supplementary Data, Note 10, Debt, of this Form 10-K. The credit facility commitment fee included in interest expense was $75 for each of the years ended December 31, 20162022 and 2015.2021.
Income Tax Expense (Credit).Expense. Our effective tax rates were 30.8%21.9% and 51.6%20.4% for the years ended December 31, 20162022 and 2015,2021, respectively. The effective rate in 2016 was lower than the statutory rate of 35.0% primarily due to adjustments for tax-exempt investment income. The effective rate for 2015 is the result of the net loss of the Company, which is increased by the adjustments for tax-exempt interest income.
Net Income (Loss). Net incomerates for the year ended December 31, 20162022 was $64,585higher than the statutory rate primary due to the impact of stock-based and executive compensation. The effective tax rates for the year end December 31, 2021 were lower than the statutory rates primarily due to the effects of tax-exempt investment income and the impact of stock-based compensation.
The comparison of results for the year ended December 31, 2021 compared to a net loss of $13,853 for the comparable 2015 period. year ended December 31, 2020 can be found in the Company’s 2021 Annual Report on Form 10-K filed with the SEC on February 28, 2022.
4744
Liquidity and Capital Resources
As a holding company, Safety’s assets consist primarily of the stock of our direct and indirect subsidiaries. Our principal source of funds to meet our obligations and pay dividends to shareholders, therefore, is dividends and other permitted payments from our subsidiaries, principally Safety Insurance. Safety is the borrower under our credit facility.
Safety Insurance’s sources of funds primarily include premiums received, investment income and proceeds from sales and redemptions of investments. Safety Insurance’s principal uses of cash are the payment of claims, operating expenses and taxes, the purchase of investments and payment of dividends to Safety.
Net cash provided by operating activities was $82,040, $98,824,$44,326, $141,394, and $22,891$109,460 during the years ended December 31, 2017, 2016,2022, 2021, and 2015,2020, respectively. Our operations typically generate positive cash flows from operations as most premiums are received in advance of the time when claim and benefit payments are required. Cash flows from operations in the year ended 2015 were lower than the years ended 2017 and 2016 due to the increased claims activity resulting from the 2015 winter events. These positive operating cash flows are expected to continue to meet our liquidity requirements.
Net cash used for investing activities was $14,924$19,988, $65,989, and $84,252$35,524 for the years ended December 31, 20172022, 2021, and December 31, 2016,2020, respectively, as purchases of fixed maturity and equity securities exceeded proceeds from the sales, paydowns, calls and maturities of fixed maturity and equity securities. Net cash provided by investing activities was $23,845 during the year ended December 31, 2015, as sales, paydowns, calls and maturities of fixed maturities and equity securities exceeded purchases of fixed maturity and equity securities due to the payment of claims resulting from the 2015 winter events.
Net cash used for financing activities was $45,460, $42,014,$62,641, $65,571, and $41,697$64,574 during the years ended December 31, 2017, 20162022, 2021 and 2015,2020, respectively. Net cash used for financing activities during the year ended December 31, 2022 and December 31, 2021 is primarily comprised of dividend payments to shareholders and share buybacks, partially offset by the acquisitionproceeds from a $5,000 borrowing from the FHLB-Boston on December 29, 2022. The borrowing was for a term of treasury stock. one-month, bearing interest at a rate of 4.34%, and was repaid on January 27, 2023. Net cash used for financing activities during the year ended December 31, 2020 is comprised of dividend payments to shareholders and share buybacks, partially offset by the proceeds from a $30,000 borrowing from the FHLB-Boston on March 17, 2020. The borrowing is for a term of five years, bearing interest at a rate of 1.42%. Interest is payable monthly, and the principal is due on the maturity date of March 17, 2025 but may be prepaid in whole or in part by the Company in advance.
The Insurance Subsidiaries maintain a high degree of liquidity within their respective investment portfolios in fixed maturity and short-term investments. We do not anticipate the need to sell these securities to meet the Insurance Subsidiaries cash requirements. We expect the Insurance Subsidiaries to generate sufficient operating cash to meet all short-term and long-term cash requirements. However, there can be no assurance that unforeseen business needs or other items will not occur causing us to have to sell securities before their values fully recover; thereby causing us to recognize additional impairment charges in that time period.
Credit Facility
For information regarding our Credit Facility, please refer to Item 8—Financial Statements and Supplementary Data, Note 8,10, Debt, of this Form 10-K.
Recent Accounting Pronouncements
For information regarding Recent Accounting Pronouncements, please refer to Item 8—Financial Statements and Supplementary Data, Note 2, Summary of Significant Accounting Policies, of this Form 10-K.
Regulatory Matters
Our insurance company’s subsidiaries are subject to various regulatory restrictions that limit the maximum amount of dividends available to be paid to their parent without prior approval of the Commissioner. The Massachusetts statute limits the dividends an insurer may pay in any twelve-month period, without the prior permission of the
45
Commissioner, to the greater of (i) 10% of the insurer’s surplus as of the preceding December 31 or (ii) the insurer’s net income for the twelve-month period ending the preceding December 31, in each case determined in accordance with statutory accounting practices. Our Insurance Subsidiaries may not declare an “extraordinary dividend” (defined as any
48
dividend or distribution that, together with other distributions made within the preceding twelve months, exceeds the limits established by Massachusetts statute) until thirty days after the Commissioner has received notice of the intended dividend and has not objected. As historically administered by the Commissioner, this provision requires the Commissioner’s prior approval of an extraordinary dividend. Under Massachusetts law, an insurer may pay cash dividends only from its unassigned funds, also known as earned surplus, and the insurer’s remaining surplus must be both reasonable in relation to its outstanding liabilities and adequate to its financial needs. At year-end 2017,2022, the statutory surplus of Safety Insurance was $617,577,$782,200, and its net income for 20172022 was $57,982.$66,197. As a result, a maximum of $61,758$78,220 is available in 20182022 for such dividends without prior approval of the Commissioner. UnderAs a result of this Massachusetts statute, the Insurance Subsidiaries hashad restricted net assets in the amount of $555,819$703,980 at December 31, 2017.2022. During the twelve months ended December 31, 2017,2022, Safety Insurance recorded dividends to Safety of $41,826. $94,260.
The maximum dividend permitted by law is not indicative of an insurer’s actual ability to pay dividends, which may be constrained by business and regulatory considerations, such as the impact of dividends on surplus, which could affect an insurer’s ratings or competitive position, the amount of premiums that can be written and the ability to pay future dividends.
Since the initial public offering of its common stock in November 2002, the Company has paid regular quarterly dividends to shareholders of its common stock. Quarterly dividends paid during 20172022 and 20162021 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total | |
Declaration |
| Record |
| Payment |
| Dividend per |
| Dividends Paid | ||
Date |
| Date |
| Date |
| Common Share |
| and Accrued | ||
February 16, 2016 |
| March 1, 2016 |
| March 15, 2016 |
| $ | 0.70 |
| $ | 10,554 |
May 3, 2016 |
| June 1, 2016 |
| June 15, 2016 |
| $ | 0.70 |
| $ | 10,610 |
August 3, 2016 |
| September 1, 2016 |
| September 15, 2016 |
| $ | 0.70 |
| $ | 10,611 |
November 1, 2016 |
| December 1, 2016 |
| December 15, 2016 |
| $ | 0.70 |
| $ | 10,615 |
February 15, 2017 |
| March 1, 2017 |
| March 15, 2017 |
| $ | 0.70 |
| $ | 10,674 |
May 3, 2017 |
| June 1, 2017 |
| June 15, 2017 |
| $ | 0.70 |
| $ | 10,665 |
August 2, 2017 |
| September 1, 2017 |
| September 15, 2017 |
| $ | 0.80 |
| $ | 12,183 |
November 1, 2017 |
| December 1, 2017 |
| December 15, 2017 |
| $ | 0.80 |
| $ | 12,167 |
| | | | | | | | | | |
|
|
|
|
|
|
| |
| Total | |
Declaration | | Record | | Payment | | Dividend per | | Dividends Paid | ||
Date | | Date | | Date | | Common Share | | and Accrued | ||
February 16, 2021 |
| March 5, 2021 |
| March 15, 2021 |
| $ | 0.90 |
| $ | 13,459 |
May 5, 2021 |
| June 1, 2021 |
| June 15, 2021 |
| $ | 0.90 |
| $ | 13,490 |
August 4, 2021 |
| September 1, 2021 |
| September 15, 2021 |
| $ | 0.90 |
| $ | 13,493 |
November 3, 2021 | | December 1, 2021 | | December 15, 2021 | | $ | 0.90 |
| $ | 13,554 |
February 15, 2022 |
| March 5, 2022 |
| March 15, 2022 |
| $ | 0.90 |
| $ | 13,248 |
May 6, 2022 |
| June 1, 2022 |
| June 15, 2022 |
| $ | 0.90 |
| $ | 13,278 |
August 3, 2022 |
| September 1, 2022 |
| September 15, 2022 |
| $ | 0.90 |
| $ | 13,262 |
November 2, 2022 | | December 1, 2022 | | December 15, 2022 | | $ | 0.90 |
| $ | 13,207 |
On February 15, 2018,2023, our Board approved and declared a quarterly cash dividend on our common stock of $0.80$0.90 per share to be paid on March 15, 20182023 to shareholders of record on March 1, 2018.2023. We plan to continue to declare and pay quarterly cash dividends in 2018,2023, depending on our financial position and the regularity of our cash flows.
On August 3, 2007,February 23, 2022, the Board of Directors approved a share repurchase program of up to $30,000$50,000 of the Company’s outstanding common shares. As of December 31, 2017, theThe Board of Directors had cumulatively authorized increases to the existing share repurchase program of up to $150,000$200,000 of its outstanding common shares. Under the program, the Company may repurchase shares of its common stock for cash in public or private transactions, in the open market or otherwise. The timing of such repurchases and actual number of shares repurchased will depend on a variety of factors including price, market conditions and applicable regulatory and corporate requirements. The program does not require usthe Company to repurchase any specific number of shares and may be modified, suspended or terminated at any time without prior notice. AtAs of December 31, 2017 and December 31, 2016,2022, the Company had purchased 2,279,5703,141,477 shares on the open market at a cost $150,000. As of December 31, 2021, the Company had purchased 2,970,573 shares on the open market at a cost of $83,835.$135,397. In connection with the acquisition of Northeast / Metrowest, the Company reissued 58,113 shares valued at $5,000.
The Company purchased an additional 170,904 shares on the open market at a cost of $14,603 through February 23, 2022. As of that date, the previously authorized share repurchase program in the amount of $150 million has been utilized.
Management believes that the current level of cash flow from operations provides us with sufficient liquidity to meet our operating needs over the next 12 months. We expect to be able to continue to meet our operating needs after
46
the next 12 months from internally generated funds. Since our ability to meet our obligations in the long term (beyond such twelve-month period) is dependent upon such factors as market changes, insurance regulatory changes and economic conditions, no assurance can be given that the available net cash flow will be sufficient to meet our operating needs. We expect that we would need to borrow or issue capital stock if we needed additional funds, for example, to pay for an acquisition or a significant expansion of our operations. There can be no assurance that sufficient funds for any of the foregoing purposes would be available to us at such time.
49
Off-Balance Sheet Arrangements
We have no material obligations under a guarantee contract meeting the characteristics identified in Accounting Standards Codification (“ASC”) 460, Guarantees. We have no material retained or contingent interests in assets transferred to an unconsolidated entity. We have no material obligations, including contingent obligations, under contracts that would be accounted for as derivative instruments. We have no obligations, including contingent obligations, arising out of a variable interest in an unconsolidated entity held by, and material to, us, where such entity provides financing, liquidity, market risk or credit risk support to, or engages in leasing, hedging or research and development services with us. We have no direct investments in real estate and no holdings of mortgages secured by commercial real estate. Accordingly, we have no material off-balance sheet arrangements.
Contractual Obligations
We have obligations to make future payments under contracts and credit-related financial instruments and commitments. At December 31, 2017, certain long-term aggregate contractual obligations and credit-related commitments are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Payments Due by Period | ||||||||||||
|
|
| Within |
|
| Two to Three |
|
| Four to Five |
|
| After |
|
|
|
|
|
| One Year |
|
| Years |
|
| Years |
|
| Five Years |
|
| Total |
Loss and LAE reserves | $ | 281,286 |
| $ | 252,584 |
| $ | 34,443 |
| $ | 5,741 |
| $ | 574,054 | |
Operating leases |
| 3,633 |
|
| 7,011 |
|
| 6,861 |
|
| 19,977 |
|
| 37,482 | |
| Total contractual obligations | $ | 284,919 |
| $ | 259,595 |
| $ | 41,304 |
| $ | 25,718 |
| $ | 611,536 |
As of December 31, 2017,2022, the Company had loss and LAE reserves of $574,054,$549,598, unpaid reinsurance recoverables of $83,085$93,394 and net loss and LAE reserves of $490,969.$456,204. Our loss and LAE reserves are estimates as described in more detail under Critical Accounting Policies and Estimates. The specific amounts and timing of obligations related to case reserves, IBNR reserves and related LAE reserves are not set contractually, and the amounts and timing of these obligations are unknown. Nonetheless, based upon our cumulative claims paid over the last ten years, the Company estimates that its loss and LAE reserves will be paid in the period shown above. While management believes that historical performance of loss payment patterns is a reasonable source for projecting future claims payments, there is inherent uncertainty in this estimated projected settlement of loss and LAE reserves, and as a result these estimates will differ, perhaps significantly, from actual future payments. Our operations typically generate substantial positive cash flows from operations as most premiums are received in advance of the time when claim and benefit payments are required. These positive operating cash flows are expected to continue to meet our liquidity requirements, including any unexpected variations in the timing of claim settlements.
As part of the Company’s investment activity, we have committed $60,000$160,000 to investments in limited partnerships and in a real estate investment trust.partnerships. The Company has contributed $30,240$114,418 to these commitments as of December 31, 2017.2022. As of December 31, 2017,2022, the remaining committed capital due tothat could be called is $29,760.$52,000, which includes potential recallable capital distributions.
Critical Accounting Policies and Estimates
Loss and Loss Adjustment Expense Reserves.Reserves
Significant periods of time can elapse between the occurrence of an insured loss, the reporting to us of that loss and our final payment of that loss. To recognize liabilities for unpaid losses, we establish reserves as balance sheet liabilities. Our reserves represent estimates of amounts needed to pay reported and unreportedestimated losses incurred but not yet reported (“IBNR”) and the expenses of investigating and paying those losses, or loss adjustment expenses. Every quarter, we review our previously established reserves and adjust them, if necessary.
When a claim is reported, claims personnel establish a “case reserve” for the estimated amount of the ultimate payment. The amount of the reserve is primarily based upon an evaluation of the type of claim involved, the circumstances surrounding each claim and the policy provisions relating to the loss. The estimate reflects the informed
50
judgment of such personnel based on general insurance reserving practices and on the experience and knowledge of the claims person. During the loss adjustment period, these estimates are revised as deemed necessary by our claims department based on subsequent developments and periodic reviews of the cases. When a claim is closed with or without a payment, the difference between the case reserve and the settlement amount creates a reserve deficiency if the payment exceeds the case reserve or a reserve redundancy if the payment is less than the case reserve.
In accordance with industry practice, we also maintain reserves for estimated losses incurred but not yet reported (“IBNR”).IBNR. IBNR reserves are determined in accordance with commonly accepted actuarial reserving techniques on the basis of our historical information and experience. We review and make adjustments to incurred but not yet reported reserves quarterly. In addition, IBNR reserves can also be expressed as the total loss reserves required less the case reserves on reported claims.
47
When reviewing reserves, we analyze historical data and estimate the impact of various loss development factors, such as our historical loss experience and that of the industry, trends in claims frequency and severity, our mix of business, our claims processing procedures, legislative enactments, judicial decisions, legal developments in imposition of damages, and changes and trends in general economic conditions, including the effects of inflation. A change in any of these factors from the assumption implicit in our estimate can cause our actual loss experience to be better or worse than our reserves, and the difference can be material. There is no precise method, however, for evaluating the impact of any specific factor on the adequacy of reserves, because the eventual development of reserves is affected by many factors.
In estimating all our loss reserves, we follow the guidance prescribed by Accounting Standards Codification (“ASC”)ASC 944, Financial Services – Insurance.
Management determines our loss and LAEloss adjustment expense reserves estimate based upon the analysis of our actuaries. A reasonable estimate is derived by selecting a point estimate within a range of indications as calculated by our actuaries using generally accepted actuarial techniques. The key assumption in most actuarial analysis is that past patterns of frequency and severity will repeat in the future, unless a significant change in the factors described above takes place. Our key factors and resulting assumptions are the ultimate frequency and severity of claims, based upon the most recent ten years of claims reported to the Company, and the data CAR reports to us to calculate our share of the residual market, as of the date of the applicable balance sheet. For each accident year and each coverage within a line of business our actuaries calculate the ultimate losses incurred. Our total reserves are the difference between the ultimate losses incurred and the cumulative loss and loss adjustment payments made to date. Our IBNR reserves are calculated as the difference between our total reserves and the outstanding case reserves at the end of the accounting period. To determine ultimate losses, our actuaries calculate a range of indications and select a point estimation using such actuarial techniques as:
| Paid Loss Indications: This method projects ultimate loss estimates based upon extrapolations of historic paid loss trends. This method tends to be used on short tail lines such as automobile physical damage. |
| Incurred Loss Indications: This method projects ultimate loss estimates based upon extrapolations of historic incurred loss trends. This method tends to be used on long tail lines of business such as automobile liability and homeowner’s liability. |
| Bornhuetter-Ferguson Indications: This method projects ultimate loss estimates based upon extrapolations of an expected amount of IBNR, which is added to current incurred losses or paid losses. This method tends to be used on small, immature, or volatile lines of business, such as our BOP and umbrella lines of business. |
| Bodily Injury Code Indications: This method projects ultimate loss estimates for our private passenger and commercial automobile bodily injury coverage based upon extrapolations of the historic number of accidents and the historic number of bodily injury claims per accident. Projected ultimate bodily injury claims are then segregated into expected claims by type of injury (e.g. soft tissue injury vs. hard tissue injury) based on past experience. An ultimate severity, or average paid loss amounts, is estimated based upon extrapolating historic trends. Projected ultimate loss estimates using this method are the aggregate of estimated losses by injury type. |
51
Such techniques assume that past experience, adjusted for the effects of current developments and anticipated trends, is an appropriate basis for predicting our ultimate losses, total reserves and resulting IBNR reserves. It is possible that the final outcome may fall above or below these amounts as a result of a number of factors, including immature data, sparse data, or significant growth in a line of business. Using these methodologies our actuaries established a range of reasonably possible estimations for net reserves of approximately $440,918$423,452 to $510,166$481,902 as of December 31, 20172022 compared to a range of $436,208$445,511 to $493,754$504,580 as of December 31, 2016.2021. In general, the low and high values of the ranges represent reasonable minimum and maximum values of the indications based on the techniques described above. Our selected point estimate of net loss and LAEloss adjustment expense reserves based upon the analysis of our actuaries was $490,969$456,204 as of December 31, 20172022 compared to $476,597$479,984 as of December 31, 2016.2021.
48
The following tables presenttable presents the point estimation of the recorded reserves and the range of estimations by line of business for net loss and LAE reserves as of December 31, 2017 and December 31, 2016.2022.
|
|
|
|
|
|
| ||||||||||||
|
|
| As of December 31, 2017 | |||||||||||||||
| | | | | | | ||||||||||||
| | | As of December 31, 2022 | |||||||||||||||
Line of Business |
| Low |
| Recorded |
| High |
| Low |
| Recorded |
| High | ||||||
Private passenger automobile |
| $ | 215,048 |
| $ | 244,057 |
| $ | 246,950 |
| $ | 179,072 |
| $ | 188,083 |
| $ | 194,457 |
Commercial automobile |
| 82,929 |
| 90,083 |
| 93,377 | | 98,783 | | 106,920 | | 109,347 | ||||||
Homeowners |
| 81,395 |
| 88,954 |
| 92,894 | | 79,920 | | 86,064 | | 93,927 | ||||||
All other |
|
| 61,546 |
|
| 67,875 |
|
| 76,945 | | | 65,677 | | | 75,137 | | | 84,171 |
Total |
| $ | 440,918 |
| $ | 490,969 |
| $ | 510,166 |
| $ | 423,452 |
| $ | 456,204 |
| $ | 481,902 |
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
| ||||||||||||
|
|
| As of December 31, 2016 | |||||||||||||||
Line of Business |
| Low |
| Recorded |
| High | ||||||||||||
Private passenger automobile |
| $ | 227,646 |
| $ | 246,918 |
| $ | 247,782 | |||||||||
Commercial automobile |
| 72,785 |
| 79,115 |
| 81,562 | ||||||||||||
Homeowners |
| 72,939 |
| 80,594 |
| 87,105 | ||||||||||||
All other |
|
| 62,838 |
|
| 69,970 |
|
| 77,305 | |||||||||
Total |
| $ | 436,208 |
| $ | 476,597 |
| $ | 493,754 | |||||||||
| | | | | | | ||||||||||||
The following table presents our total net reserves and the corresponding case reserves and IBNR reserves for each line of business as of December 31, 2017 and December 31, 2016.2022.
|
|
|
|
|
|
| ||||||||||||
|
|
| As of December 31, 2017 | |||||||||||||||
| | | | | | | ||||||||||||
| | | As of December 31, 2022 | |||||||||||||||
Line of Business |
| Case |
| IBNR |
| Total |
| Case |
| IBNR |
| Total | ||||||
Private passenger automobile |
| $ | 254,804 |
| $ | (11,084) |
| $ | 243,720 |
| $ | 231,603 |
| $ | (43,528) |
| $ | 188,075 |
CAR assumed private passenger auto |
| 22 |
| 315 |
| 337 | | 1 | | 7 | | 8 | ||||||
Commercial automobile |
| 53,570 |
| 8,603 |
| 62,173 | | 64,797 | | 11,812 | | 76,609 | ||||||
CAR assumed commercial automobile |
| 14,307 |
| 13,603 |
| 27,910 | | 18,099 | | 12,213 | | 30,312 | ||||||
Homeowners |
| 77,834 |
| 782 |
| 78,616 | | 80,253 | | (3,896) | | 76,357 | ||||||
FAIR Plan assumed homeowners |
| 3,174 |
| 7,164 |
| 10,338 | | 3,993 | | 5,714 | | 9,707 | ||||||
All other |
|
| 40,604 |
|
| 27,271 |
|
| 67,875 | | | 39,984 | | | 35,152 | | | 75,136 |
Total net reserves for losses and LAE |
| $ | 444,315 |
| $ | 46,654 |
| $ | 490,969 |
| $ | 438,730 |
| $ | 17,474 |
| $ | 456,204 |
|
|
|
|
|
|
| ||||||||||||
|
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|
|
|
| ||||||||||||
|
|
| As of December 31, 2016 | |||||||||||||||
Line of Business |
| Case |
| IBNR |
| Total | ||||||||||||
Private passenger automobile |
| $ | 261,387 |
| $ | (14,827) |
| $ | 246,560 | |||||||||
CAR assumed private passenger auto |
| 65 |
| 293 |
| 358 | ||||||||||||
Commercial automobile |
| 50,155 |
| 7,863 |
| 58,018 | ||||||||||||
CAR assumed commercial automobile |
| 11,133 |
| 9,964 |
| 21,097 | ||||||||||||
Homeowners |
| 68,781 |
| 2,138 |
| 70,919 | ||||||||||||
FAIR Plan assumed homeowners |
| 3,654 |
| 6,021 |
| 9,675 | ||||||||||||
All other |
|
| 38,562 |
|
| 31,408 |
|
| 69,970 | |||||||||
Total net reserves for losses and LAE |
| $ | 433,737 |
| $ | 42,860 |
| $ | 476,597 | |||||||||
| | | | | | | ||||||||||||
| | | | | | | ||||||||||||
At December 31, 20172022 and 2016,2021, our total IBNR reserves for our private passenger automobile line of business were comprised of $(31,856)$(67,848) and $(36,629)$(60,228) related to estimated ultimate decreases in the case reserves, including anticipated recoveries (i.e. salvage and subrogation), and $20,772$24,320 and $21,802$17,352 related to our estimation for not yet reported losses, respectively.
52
Our IBNR reserves consist of our estimate of the total loss reserves required less our case reserves. The IBNR reserves for CAR assumed commercial automobile business are 48.7%40.3% of our total reserves for CAR assumed commercial automobile business as of December 31, 20172022 due to the reporting delays in the information we receive from CAR, as described further in the section on CARResidual Market Loss and Loss Adjustment Expense Reserves. Our IBNR reserves for FAIR Plan assumed homeowners are 69.3%58.9% of our total reserves for FAIR Plan assumed homeowners at December 31, 20172022 due to similar reporting delays in the information we receive from FAIR Plan.
The following tables presenttable presents information by line of business for our total net reserves and the corresponding retained (i.e. direct less ceded) reserves and assumed reserves as of December 31, 2017 and 2016.2022.
| | | | | | | | | |
| | | As of December 31, 2022 | ||||||
Line of Business |
| | Retained |
| | Assumed |
| | Net |
Private passenger automobile |
| $ | 188,075 | | | | | | |
CAR assumed private passenger automobile | | | |
| $ | 8 | | | |
Net private passenger automobile | | | | | | |
| $ | 188,083 |
Commercial automobile | | | 76,609 | | | | | | |
CAR assumed commercial automobile | | | | | | 30,312 | | | |
Net commercial automobile | | | | | | | | | 106,921 |
Homeowners | | | 76,357 | | | | | | |
FAIR Plan assumed homeowners | | | | | | 9,707 | | | |
Net homeowners | | | | | | | | | 86,064 |
All other | | | 75,136 | | | — | | | 75,136 |
Total net reserves for losses and LAE |
| $ | 416,177 |
| $ | 40,027 |
| $ | 456,204 |
| | | | | | | | | |
| | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
|
| As of December 31, 2017 | ||||||
Line of Business |
|
| Retained |
|
| Assumed |
|
| Net |
Private passenger automobile |
| $ | 243,720 |
|
|
|
|
|
|
CAR assumed private passenger automobile |
|
|
|
| $ | 337 |
|
|
|
Net private passenger automobile |
|
|
|
|
|
|
| $ | 244,057 |
Commercial automobile |
|
| 62,173 |
|
|
|
|
|
|
CAR assumed commercial automobile |
|
|
|
|
| 27,910 |
|
|
|
Net commercial automobile |
|
|
|
|
|
|
|
| 90,083 |
Homeowners |
|
| 78,616 |
|
|
|
|
|
|
FAIR Plan assumed homeowners |
|
|
|
|
| 10,338 |
|
|
|
Net homeowners |
|
|
|
|
|
|
|
| 88,954 |
All other |
|
| 67,875 |
|
| — |
|
| 67,875 |
Total net reserves for losses and LAE |
| $ | 452,384 |
| $ | 38,585 |
| $ | 490,969 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of December 31, 2016 | ||||||
Line of Business |
|
| Retained |
|
| Assumed |
|
| Net |
Private passenger automobile |
| $ | 246,560 |
|
|
|
|
|
|
CAR assumed private passenger automobile |
|
|
|
| $ | 358 |
|
|
|
Net private passenger automobile |
|
|
|
|
|
|
| $ | 246,918 |
Commercial automobile |
|
| 58,018 |
|
|
|
|
|
|
CAR assumed commercial automobile |
|
|
|
|
| 21,097 |
|
|
|
Net commercial automobile |
|
|
|
|
|
|
|
| 79,115 |
Homeowners |
|
| 70,919 |
|
|
|
|
|
|
FAIR Plan assumed homeowners |
|
|
|
|
| 9,675 |
|
|
|
Net homeowners |
|
|
|
|
|
|
|
| 80,594 |
All other |
|
| 69,970 |
|
| - |
|
| 69,970 |
Total net reserves for losses and LAE |
| $ | 445,467 |
| $ | 31,130 |
| $ | 476,597 |
49
Residual Market Loss and Loss Adjustment Expense Reserves
We are a participant in CAR, the FAIR Plan and other various residual markets and assume a portion of losses and LAE on business ceded by the industry participants to the residual markets. We estimate reserves for assumed losses and LAE that have not yet been reported to us by the residual markets. Our estimations are based upon the same factors we use for our own reserves, plus additional factors due to the nature of and the information we receive.
Residual market deficits consist of premium ceded to the various residual markets less losses and LAE and is allocated among insurance companies based on a various formulas (the “Participation Ratio”) that take into consideration a company’s voluntary market share.
Although we rely to a significant extent in setting our reserves on the information the various residual markets provide, we are cautious in our use of that information, because of the delays in receiving data from the various residual markets. Because of the lag in the various residual market estimations, and in order to try to validate to the extent possible the information provided, we estimate the effects of the actions of our competitors in order to establish our Participation Ratio.
53
that information, because of the delays in receiving data from the various residual markets. As a result, we have to estimate our Participation Ratio and these reserves are subject to significant judgments and estimates.
Sensitivity Analysis
Establishment of appropriate reserves is an inherently uncertain process. There can be no certainty that currently established reserves based on our key assumptions regarding frequency and severity in our lines of business, or our assumptions regarding our share of the CAR loss will prove adequate in light of subsequent actual experience. To the extent that reserves are inadequate and are strengthened, the amount of such increase is treated as a charge to earnings in the period that the deficiency is recognized. To the extent that reserves are redundant and are released, the amount of the release is a credit to earnings in the period the redundancy is recognized. For the twelve months ended December 31, 2017,2022, a 1 percentage-point change in the loss and LAE ratio would result in a change in reserves of $7,741.$7,588. Each 1 percentage-point change in the loss and loss expense ratio would have had a $5,032$5,995 effect on net income, or $0.33$0.41 per diluted share.
Our assumptions consider that past experience, adjusted for the effects of current developments and anticipated trends, are an appropriate basis for establishing our reserves. Our individual key assumptions could each have a reasonable possible range of plus or minus 5 percentage-points for each estimation, although there is no guarantee that our assumptions will not have more than a 5 percentage point variation. The following sensitivity tables present information for each of our primary lines of business on the effect each 1 percentage-point change in each of our key assumptions on unpaid frequency and severity could have on our retained (i.e., direct minus ceded) loss and LAE reserves and net income for the twelve months ended December 31, 2017.2022. In evaluating the information in the table, it should be noted that a 1 percentage-point change in a single assumption would change estimated reserves by 1 percentage-point. A 1 percentage-point change in both our key assumptions would change estimated reserves within a range of plus or minus 2 percentage-points.
5450
| | | | | | | | | |
|
| -1 Percent |
| No |
| +1 Percent | |||
| | Change in | | Change in | | Change in | |||
| | Frequency | | Frequency | | Frequency | |||
Private passenger automobile retained loss and LAE reserves | | | | | | | | | |
-1 Percent Change in Severity | | | | | | | | | |
Estimated decrease in reserves |
| $ | (3,761) |
| $ | (1,881) |
| $ | — |
Estimated increase in net income | | | 2,972 | | | 1,486 | | | — |
No Change in Severity | | | | | | | | | |
Estimated (decrease) increase in reserves | | | (1,881) | | | — | | | 1,881 |
Estimated increase (decrease) in net income | | | 1,486 | | | — | | | (1,486) |
+1 Percent Change in Severity | | | | | | | | | |
Estimated increase in reserves | | | — | | | 1,881 | | | 3,761 |
Estimated decrease in net income | | | — | | | (1,486) | | | (2,972) |
| | | | | | | | | |
Commercial automobile retained loss and LAE reserves | | | | | | | | | |
-1 Percent Change in Severity | | | | | | | | | |
Estimated decrease in reserves | | | (1,532) | | | (766) | | | — |
Estimated increase in net income | | | 1,210 | | | 605 | | | — |
No Change in Severity | | | | | | | | | |
Estimated (decrease) increase in reserves | | | (766) | | | — | | | 766 |
Estimated increase (decrease) in net income | | | 605 | | | — | | | (605) |
+1 Percent Change in Severity | | | | | | | | | |
Estimated increase in reserves | | | — | | | 766 | | | 1,532 |
Estimated decrease in net income | | | — | | | (605) | | | (1,210) |
| | | | | | | | | |
Homeowners retained loss and LAE reserves | | | | | | | | | |
-1 Percent Change in Severity | | | | | | | | | |
Estimated decrease in reserves | | | (1,527) | | | (764) | | | — |
Estimated increase in net income | | | 1,206 | | | 603 | | | — |
No Change in Severity | | | | | | | | | |
Estimated (decrease) increase in reserves | | | (764) | | | — | | | 764 |
Estimated increase (decrease) in net income | | | 603 | | | — | | | (603) |
+1 Percent Change in Severity | | | | | | | | | |
Estimated increase in reserves | | | — | | | 764 | | | 1,527 |
Estimated decrease in net income | | | — | | | (603) | | | (1,206) |
| | | | | | | | | |
All other retained loss and LAE reserves | | | | | | | | | |
-1 Percent Change in Severity | | | | | | | | | |
Estimated decrease in reserves | | | (1,503) | | | (751) | | | — |
Estimated increase in net income | | | 1,187 | | | 594 | | | — |
No Change in Severity | | | | | | | | | |
Estimated (decrease) increase in reserves | | | (751) | | | — | | | 751 |
Estimated increase (decrease) in net income | | | 594 | | | — | | | (594) |
+1 Percent Change in Severity | | | | | | | | | |
Estimated increase in reserves | | | — | | | 751 | | | 1,503 |
Estimated decrease in net income | | | — | | | (594) | | | (1,187) |
|
|
|
|
|
|
|
|
|
|
|
|
| -1 Percent |
| No |
| +1 Percent |
| |||
|
| Change in |
| Change in |
| Change in |
| |||
|
| Frequency |
| Frequency |
| Frequency |
| |||
Private passenger automobile retained loss and LAE reserves |
|
|
|
|
|
|
|
|
|
|
-1 Percent Change in Severity |
|
|
|
|
|
|
|
|
|
|
Estimated decrease in reserves |
| $ | (4,874) |
| $ | (2,437) |
| $ | — |
|
Estimated increase in net income |
|
| 3,168 |
|
| 1,584 |
|
| — |
|
No Change in Severity |
|
|
|
|
|
|
|
|
|
|
Estimated (decrease) increase in reserves |
|
| (2,437) |
|
| — |
|
| 2,437 |
|
Estimated increase (decrease) in net income |
|
| 1,584 |
|
| — |
|
| (1,584) |
|
+1 Percent Change in Severity |
|
|
|
|
|
|
|
|
|
|
Estimated increase in reserves |
|
| — |
|
| 2,437 |
|
| 4,874 |
|
Estimated decrease in net income |
|
| — |
|
| (1,584) |
|
| (3,168) |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial automobile retained loss and LAE reserves |
|
|
|
|
|
|
|
|
|
|
-1 Percent Change in Severity |
|
|
|
|
|
|
|
|
|
|
Estimated decrease in reserves |
|
| (1,243) |
|
| (622) |
|
| — |
|
Estimated increase in net income |
|
| 808 |
|
| 404 |
|
| — |
|
No Change in Severity |
|
|
|
|
|
|
|
|
|
|
Estimated (decrease) increase in reserves |
|
| (622) |
|
| — |
|
| 622 |
|
Estimated increase (decrease) in net income |
|
| 404 |
|
| — |
|
| (404) |
|
+1 Percent Change in Severity |
|
|
|
|
|
|
|
|
|
|
Estimated increase in reserves |
|
| — |
|
| 622 |
|
| 1,243 |
|
Estimated decrease in net income |
|
| — |
|
| (404) |
|
| (808) |
|
|
|
|
|
|
|
|
|
|
|
|
Homeowners retained loss and LAE reserves |
|
|
|
|
|
|
|
|
|
|
-1 Percent Change in Severity |
|
|
|
|
|
|
|
|
|
|
Estimated decrease in reserves |
|
| (1,572) |
|
| (786) |
|
| — |
|
Estimated increase in net income |
|
| 1,022 |
|
| 511 |
|
| — |
|
No Change in Severity |
|
|
|
|
|
|
|
|
|
|
Estimated (decrease) increase in reserves |
|
| (786) |
|
| — |
|
| 786 |
|
Estimated increase (decrease) in net income |
|
| 511 |
|
| — |
|
| (511) |
|
+1 Percent Change in Severity |
|
|
|
|
|
|
|
|
|
|
Estimated increase in reserves |
|
| — |
|
| 786 |
|
| 1,572 |
|
Estimated decrease in net income |
|
| — |
|
| (511) |
|
| (1,022) |
|
|
|
|
|
|
|
|
|
|
|
|
All other retained loss and LAE reserves |
|
|
|
|
|
|
|
|
|
|
-1 Percent Change in Severity |
|
|
|
|
|
|
|
|
|
|
Estimated decrease in reserves |
|
| (1,358) |
|
| (679) |
|
| — |
|
Estimated increase in net income |
|
| 882 |
|
| 441 |
|
| — |
|
No Change in Severity |
|
|
|
|
|
|
|
|
|
|
Estimated (decrease) increase in reserves |
|
| (679) |
|
| — |
|
| 679 |
|
Estimated increase (decrease) in net income |
|
| 441 |
|
| — |
|
| (441) |
|
+1 Percent Change in Severity |
|
|
|
|
|
|
|
|
|
|
Estimated increase in reserves |
|
| — |
|
| 679 |
|
| 1,358 |
|
Estimated decrease in net income |
|
| — |
|
| (441) |
|
| (882) |
|
Our estimated share of CAR loss and LAE reserves is based on assumptions about our Participation Ratio, the size of CAR, and the resulting deficit (similar assumptions apply with respect to the FAIR Plan). Our assumptions consider that past experience, adjusted for the effects of current developments and anticipated trends, is an appropriate basis for establishing our CAR reserves. Each of our assumptions could have a reasonably possible range of plus or minus 5 percentage-points for each estimation.
The following sensitivity table presents information of the effect each 1 percentage-point change in our assumptions on our share of reserves for CAR and other residual markets could have on our assumed loss and LAE
55
reserves and net income for the year ended December 31, 2017.2022. In evaluating the information in the table, it should be noted that a 1 percentage-point change in our assumptions would change estimated reserves by 1 percentage-point.
51
| | | | | | |
|
| -1 Percent |
| +1 Percent | ||
| | Change in | | Change in | ||
| | Estimation | | Estimation | ||
CAR assumed commercial automobile | | | | | | |
Estimated (decrease) increase in reserves | | $ | (303) | | $ | 303 |
Estimated increase (decrease) in net income | | | 239 | | | (239) |
FAIR Plan assumed homeowners | | | | | | |
Estimated (decrease) increase in reserves | | | (97) | | | 97 |
Estimated increase (decrease) in net income | | | 77 | | | (77) |
|
|
|
|
|
|
|
|
|
| -1 Percent |
| +1 Percent |
| ||
|
| Change in |
| Change in |
| ||
|
| Estimation |
| Estimation |
| ||
CAR assumed private passenger automobile |
|
|
|
|
|
|
|
Estimated (decrease) increase in reserves |
| $ | (3) |
| $ | 3 |
|
Estimated increase (decrease) in net income |
|
| 2 |
|
| (2) |
|
CAR assumed commercial automobile |
|
|
|
|
|
|
|
Estimated (decrease) increase in reserves |
|
| (279) |
|
| 279 |
|
Estimated increase (decrease) in net income |
|
| 181 |
|
| (181) |
|
FAIR Plan assumed homeowners |
|
|
|
|
|
|
|
Estimated (decrease) increase in reserves |
|
| (103) |
|
| 103 |
|
Estimated increase (decrease) in net income |
|
| 67 |
|
| (67) |
|
Reserve Development Summary
The changes we have recorded in our reserves in the past illustrate the uncertainty of estimating reserves. Our prior year reserves decreased by $41,784, $45,448$57,279, $53,673 and $30,313 for$54,844 during the years ended December 31, 2017, 2016,2022, 2021, and 2015,2020, respectively.
The following table presents a comparison of prior year development of our net reserves for losses and LAE for the years ended December 31, 2017, 20162022, 2021 and 2015,2020, respectively. Each accident year represents all claims for an annual accounting period in which loss events occurred, regardless of when the losses are actually reported, booked or paid. Our financial statements reflect the aggregate results of the current and all prior accident years.
|
|
|
|
|
|
| ||||||||||||
|
| Years Ended December 31, | ||||||||||||||||
| | | | | | | ||||||||||||
| | Year Ended December 31, | ||||||||||||||||
Accident Year |
| 2017 |
| 2016 |
| 2015 |
| 2022 |
| 2021 | | 2020 | ||||||
2007 & prior |
| $ | (950) |
| $ | (1,834) |
| $ | (2,476) | |||||||||
2008 |
|
| (7) |
| (1,880) |
| (1,071) | |||||||||||
2009 |
|
| (698) |
| (1,080) |
| (1,678) | |||||||||||
2010 |
|
| (1,583) |
| (2,670) |
| (3,559) | |||||||||||
2011 |
|
| (4,439) |
| (5,370) |
| (4,898) | |||||||||||
2012 |
|
| (6,152) |
| (6,970) |
| (10,754) | |||||||||||
2012 & prior | | $ | (423) | | $ | (1,609) | | $ | (2,723) | |||||||||
2013 |
|
| (7,748) |
| (12,589) |
| (4,683) | | | (880) | | (194) | | (822) | ||||
2014 |
|
| (13,989) |
| (9,398) |
| (1,194) | | | (521) | | (1,534) | | (452) | ||||
2015 |
| 1,548 |
| (3,657) |
| — | | | (2,057) | | (2,757) | | (3,265) | |||||
2016 |
|
| (7,766) |
|
| — |
| — | | | (1,662) | | (1,096) | | (5,496) | |||
2017 | | | (3,749) | | (4,682) | | (10,726) | |||||||||||
2018 | | | (7,233) | | (10,190) | | (16,697) | |||||||||||
2019 | | | (12,520) | | (16,810) | | (14,663) | |||||||||||
2020 | | (18,985) | | (14,801) | | — | ||||||||||||
2021 | | | (9,249) | | | — | | | — | |||||||||
All prior years |
| $ | (41,784) |
| $ | (45,448) |
| $ | (30,313) |
| $ | (57,279) |
| $ | (53,673) | | $ | (54,844) |
At the end of each period, the reserves were re-estimated for all prior accident years. Our prior year reserves decreased by $41,784, $45,448,$57,279, $53,673, and $30,313$54,844 for the years ended 2017, 2016,2022, 2021, and 2015,2020, respectively. The decreases in prior year reserves in 20172022 resulted from re-estimations of prior year’s ultimate loss and LAE liabilities and are primarily composed of reductions of $29,855$20,241 in our retained automobile reserves and $10,201$32,963 in our retained other than auto and homeowner’s reserves, inclusive of the reinsurance recoverable loss.reserves. The decreases in prior year reserves in 20162021 resulted from re-estimations of prior year’s ultimate loss and LAE liabilities and are primarily composed of reductions of $25,019$22,313 in our retained automobile reserves and $11,648$26,220 in our retained other than auto and homeowner reserves. The decrease in prior year reserves during 2015 is2020 are primarily composed of reductions of $18,644$26,902 in our retained automobile reserves and $7,964$21,717 in our retained homeowners reserves. It is not appropriate to extrapolate future favorable or unfavorable development of reserves from this past experience.
5652
The following table presents information by line of business for prior year development of our net reserves for losses and LAE for the year ended December 31, 2017.2022.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
| Private Passenger |
| Commercial |
|
|
|
|
|
|
|
| |||||||||||||||||||
| | | | | | | | | | | | | | ||||||||||||||||||
|
| Private Passenger |
| Commercial |
|
| |
| |
| | ||||||||||||||||||||
Accident Year |
| Automobile |
| Automobile |
| Homeowners |
| All Other |
| Total |
| | Automobile | | Automobile | | Homeowners | | All Other | | Total | ||||||||||
2007 & prior |
| $ | (526) |
| $ | (267) |
| $ | — |
| $ | (157) |
| $ | (950) |
| |||||||||||||||
2008 |
|
| (7) |
|
| (1) |
|
| 1 |
| — |
| (7) |
| |||||||||||||||||
2009 |
|
| (580) |
|
| (119) |
|
| — |
| 1 |
| (698) |
| |||||||||||||||||
2010 |
|
| (532) |
|
| (538) |
|
| (123) |
| (390) |
| (1,583) |
| |||||||||||||||||
2011 |
|
| (1,127) |
|
| (313) |
|
| (1,062) |
| (1,937) |
| (4,439) |
| |||||||||||||||||
2012 |
|
| (1,872) |
|
| (812) |
|
| (1,689) |
| (1,779) |
| (6,152) |
| |||||||||||||||||
2012 & prior | | $ | (343) | | $ | (44) | | $ | (53) | | $ | 17 | | $ | (423) | ||||||||||||||||
2013 |
|
| (2,472) |
|
| (630) |
|
| (3,089) |
| (1,557) |
| (7,748) |
| | | (7) | | | (4) | | | (76) | | (793) | | | (880) | |||
2014 |
|
| (4,717) |
|
| (1,107) |
|
| (4,815) |
| (3,350) |
| (13,989) |
| | | (24) | | | 315 | | | (204) | | | (608) | | | (521) | ||
2015 |
|
| (4,710) |
|
| (83) |
|
| 8,215 |
| (1,874) |
| 1,548 |
| | | (275) | | | (386) | | | (601) | | | (795) | | | (2,057) | ||
2016 |
|
| (7,921) |
|
| (145) |
|
| (542) |
|
| 842 |
|
| (7,766) |
| | | 142 | | | (217) | | | (670) | | | (917) | | | (1,662) |
2017 | | | (752) | | | (790) | | | (921) | | | (1,286) | | | (3,749) | ||||||||||||||||
2018 | | | (2,271) | | | (1,479) | | | (2,196) | | | (1,287) | | | (7,233) | ||||||||||||||||
2019 | | | (4,624) | | | (2,255) | | | (3,765) | | | (1,876) | | | (12,520) | ||||||||||||||||
2020 | | | (5,945) | | | (2,699) | | | (6,829) | | | (3,512) | | | (18,985) | ||||||||||||||||
2021 | | | 15 | | | (1,654) | | | (819) | | | (6,791) | | | (9,249) | ||||||||||||||||
All prior years |
| $ | (24,464) |
| $ | (4,015) |
| $ | (3,104) |
| $ | (10,201) |
| $ | (41,784) |
|
| $ | (14,084) |
| $ | (9,213) |
| $ | (16,134) |
| $ | (17,848) |
| $ | (57,279) |
To further clarify the effects of changes in our reserve estimates for CAR and other residual markets, the next two tables break out the information in the table above by source of the business (i.e., non-residual market vs. residual market).
The following table presents information by line of business for prior year development of retained reserves for losses and LAE for the year ended December 31, 20172022 that is, all our reserves except for business ceded or assumed from CAR and other residual markets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
|
| Retained |
|
| Retained |
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
|
| Private Passenger |
|
| Commercial |
|
| Retained |
|
| Retained |
|
|
|
| |||||||||||||||
| | | | | | | | | | | | | | | | ||||||||||||||||
|
| | Retained |
| | Retained |
| |
|
| |
|
| |
| ||||||||||||||||
| | | Private Passenger | | | Commercial | | | Retained | | | Retained | | | | ||||||||||||||||
Accident Year |
|
| Automobile |
|
| Automobile |
|
| Homeowners |
|
| All Other |
|
| Total |
| | | Automobile | | | Automobile | | | Homeowners | | | All Other | | | Total |
2007 & prior |
| $ | (519) |
| $ | (183) |
| $ | — |
| $ | (157) |
| $ | (859) |
| |||||||||||||||
2008 |
|
| (7) |
|
| (1) |
|
| 1 |
|
| — |
|
| (7) |
| |||||||||||||||
2009 |
|
| (580) |
|
| (110) |
|
| — |
|
| 1 |
|
| (689) |
| |||||||||||||||
2010 |
|
| (532) |
|
| (515) |
|
| (123) |
|
| (390) |
|
| (1,560) |
| |||||||||||||||
2011 |
|
| (1,127) |
|
| (284) |
|
| (1,056) |
|
| (1,937) |
|
| (4,404) |
| |||||||||||||||
2012 |
|
| (1,872) |
|
| (783) |
|
| (1,574) |
|
| (1,779) |
|
| (6,008) |
| |||||||||||||||
2012 & prior | | $ | (343) | | $ | (44) | | $ | (53) | | $ | 17 | | $ | (423) | ||||||||||||||||
2013 |
|
| (2,472) |
|
| (907) |
|
| (2,938) |
|
| (1,557) |
|
| (7,874) |
| | | (7) | | | (4) | | | (76) | | | (793) | | | (880) |
2014 |
|
| (4,717) |
|
| (1,540) |
|
| (4,723) |
|
| (3,350) |
|
| (14,330) |
| | | (24) | | | 315 | | | (204) | | | (608) | | | (521) |
2015 |
|
| (4,710) |
|
| (511) |
|
| 8,534 |
|
| (1,874) |
|
| 1,439 |
| | | (275) | | | (342) | | | (601) | | | (795) | | | (2,013) |
2016 |
|
| (7,922) |
|
| (563) |
|
| 67 |
|
| 842 |
|
| (7,576) |
| | | 142 | | | (189) | | | (668) | | | (917) | | | (1,632) |
2017 | | | (752) | | | (680) | | | (922) | | | (1,286) | | | (3,640) | ||||||||||||||||
2018 | | | (2,271) | | | (1,141) | | | (2,139) | | | (1,287) | | | (6,838) | ||||||||||||||||
2019 | | | (4,624) | | | (1,773) | | | (3,578) | | | (1,876) | | | (11,851) | ||||||||||||||||
2020 | | | (5,945) | | | (1,899) | | | (6,246) | | | (3,512) | | | (17,602) | ||||||||||||||||
2021 | | | 15 | | | (400) | | | (628) | | | (6,791) | | | (7,804) | ||||||||||||||||
All prior years |
| $ | (24,458) |
| $ | (5,397) |
| $ | (1,812) |
| $ | (10,201) |
| $ | (41,868) |
|
| $ | (14,084) |
| $ | (6,157) |
| $ | (15,115) |
| $ | (17,848) |
| $ | (53,204) |
The following table presents information by line of business for prior year development of reserves assumed from residual markets for losses and LAE for the year ended December 31, 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| CAR Assumed |
|
| CAR Assumed |
|
|
|
|
|
|
|
|
|
| Private Passenger |
|
| Commercial |
|
| FAIR Plan |
|
|
|
|
Accident Year |
|
| Automobile |
|
| Automobile |
|
| Homeowners |
|
| Total |
|
2007 & prior |
| $ | (7) |
| $ | (84) |
| $ | — |
| $ | (91) |
|
2008 |
|
| — |
|
| — |
|
| — |
|
| — |
|
2009 |
|
| — |
|
| (9) |
|
| — |
|
| (9) |
|
2010 |
|
| — |
|
| (23) |
|
| — |
|
| (23) |
|
2011 |
|
| — |
|
| (29) |
|
| (6) |
|
| (35) |
|
2012 |
|
| — |
|
| (29) |
|
| (115) |
|
| (144) |
|
2013 |
|
| — |
|
| 277 |
|
| (151) |
|
| 126 |
|
2014 |
|
| — |
|
| 433 |
|
| (92) |
|
| 341 |
|
2015 |
|
| — |
|
| 428 |
|
| (319) |
|
| 109 |
|
2016 |
|
| 1 |
|
| 418 |
|
| (609) |
|
| (190) |
|
All prior years |
| $ | (6) |
| $ | 1,382 |
| $ | (1,292) |
| $ | 84 |
|
| | | | | | | | | | | | |
|
| | CAR Assumed |
| | CAR Assumed |
| |
|
| |
|
| | | Private Passenger | | | Commercial | | | FAIR Plan | | | |
Accident Year | | | Automobile | | | Automobile | | | Homeowners | | | Total |
2015 | | $ | — | | $ | (44) | | $ | — | | $ | (44) |
2016 | | | — | | | (28) | | | (2) | | | (30) |
2017 | | | — | | | (110) | | | 1 | | | (109) |
2018 | | | — | | | (338) | | | (57) | | | (395) |
2019 | | | — | | | (482) | | | (187) | | | (669) |
2020 | | | — | | | (800) | | | (583) | | | (1,383) |
2021 | | | — | | | (1,254) | | | (191) | | | (1,445) |
All prior years |
| $ | — |
| $ | (3,056) |
| $ | (1,019) |
| $ | (4,075) |
Our private passenger automobile line of business prior year reserves decreased by $24,464 for the year ended December 31, 2017.
The decrease was primarily due to improved retained private passenger results of $19,820 for the accident years 2013 through 2016.
57
The improved retained private passengerand commercial automobile results were primarily due to fewer IBNR claims than previously estimated and better than previously estimated severity on our established bodily injury and property damage case reserves.
Our retained commercial automobile line of business prior year reserves decreased by $5,397 for the year ended December 31, 2017 due primarily to fewer IBNR claims than previously estimated.
Our retained homeowners line of business prior year reserves decreased by $1,812 for the year ended December 31, 2017 due primarily to re-estimation of catastrophe losses for 2013 through 2015. The unfavorable development in accident year 2015 is attributable to the reinsurance arbitration in regards to the reinsurance recoverable resulting from the 2015 winter storm losses that are admissible under our contract. The total amount of recoverable in dispute, which is based on our total incurred loss, was $20,918. On January 8, 2018 the Company received a final order from the panel of arbitrators in which the reinsurer would pay the Company $9,200 for settlement of all paid and outstanding losses. The remaining unrecovered amount of $11,718 was expensed in 2017.
Our retained other than auto and homeowners line of business prior year reserves decreased, by $10,201 for the year ended December 31, 2017 due primarily to fewer IBNR claims than previously estimated.
53
In estimating all our loss reserves, including CAR, we follow the guidance prescribed by ASC 944, Financial Services-Insurance.
For further information, see “Results of Operations: Losses and Loss Adjustment Expenses.”
Other-Than-Temporary Impairments.Investment Impairments
We useThe Company uses a systematic methodology to evaluate declines in fair values below cost or amortized cost of our investments. Some of the factors considered in assessing impairment of fixed maturities due to credit losses include the extent to which the fair value is less than amortized cost, the financial condition of and the near and long-term prospects of the issuer, whether the debtor is current on its contractually obligated interest and principal payments, changes to the rating of the security by a rating agency, the historical volatility of the fair value of the security and whether it is more like than not that the Company will be required to sell the investment prior to an anticipated recovery in value. This methodology ensures that we evaluate available evidence concerning any declines in a disciplined manner.
In our determination of whether a decline in fair value below amortized cost is an other-than-temporary impairment (“OTTI”), we consider and evaluate several factors and circumstances includingFor fixed maturities that the issuer’s overall financial condition, the issuer’s credit and financial strength ratings, a weakening of the general market conditions in the industryCompany does not intend to sell or geographic region in which the issuer operates, a prolonged period (typically six months or longer) in which the fair value of an issuer’s securities remains below our amortized cost, and any other factors that may raise doubt about the issuer’s ability to continue as a going concern.
ASC 320, Investments — Debt and Equity Securities requires entities to separate an OTTI of a debt security into two components when there are credit related losses associated with the impaired debt security for which the Company asserts that it does not have the intent to sell the security, and it is more likely than not that it will not be required to sell the security before recovery of its cost basis. Under ASC 320, the amount of the OTTI related to a credit loss is recognized in earnings, and the amount of the OTTI related to other factors is recorded as a component of other comprehensive income (loss). In instances where no credit loss exists but it is more likely than not that the Company will havewould not be required to sell the debt security prior to thebefore an anticipated recovery in value, the decline in market value below amortized costCompany separates the expected credit loss component of the impairment from the amount related to all other factors. The expected credit loss component is recognized as an OTTIallowance for expected credit losses. The allowance is adjusted for any additional credit losses and subsequent recoveries, which are booked in earnings. In periods afterincome as either credit loss expense or credit loss benefit, respectively. Upon recognizing a credit loss, the recognition of an OTTI on debt securities, the Company accounts for such securities as if they had been purchased on the measurement date of the OTTI at an amortized cost basis equalis not adjusted. The impairment related to the previous amortized cost basis less the OTTI recognizedall other factors (non-credit factors) is reported in earnings. For debt securities for which OTTI was recognized in earnings, the difference between the new amortized cost basis and the cash flows expected to be collected will be accreted or amortized into net investmentother comprehensive income.
For further information, see “Results of Operations: Net Realized Gains (Losses) on Investments.Credit Loss Benefit (Expense).”
58
Forward-looking statements might include one or more of the following, among others:
| Projections of revenues, income, earnings per share, capital expenditures, dividends, capital structure or other financial items; |
| Descriptions of plans or objectives of management for future operations, products or services; |
| Forecasts of future economic performance, liquidity, need for funding and income; |
| Legal and regulatory commentary; |
● | Descriptions of assumptions underlying or relating to any of the foregoing; and |
| Future performance of credit markets. |
Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “aim,” “projects,” or words of similar meaning and expressions that indicate future events and trends, or future or conditional verbs such as “will,” “would,” “should,” “could,” or “may.” All statements that address expectations or projections about the future, including statements about the Company’s strategy for growth, product development, market position, expenditures and financial results, are forward-looking statements.
Forward-looking statements are not guarantees of future performance. By their nature, forward-looking statements are subject to risks and uncertainties. There are a number of factors, many of which are beyond our control, that could cause actual future conditions, events, results or trends to differ significantly and/or materially from historical results or those projected in the forward-looking statements. These factors include but are not limited to theto:
| ● | The competitive nature of our industry and the possible adverse effects of such competition; |
| ● | Conditions for business operations and restrictive regulations in Massachusetts; |
| ● | The possibility of losses due to claims resulting from severe weather; |
| ● | The impact of inflation and supply chain delays on loss severity; |
54
| ● | The possibility that the Commissioner may approve future rule changes that change the operation of the residual market; |
| ● | The possibility that existing insurance-related laws and regulations will become further restrictive in the future; |
| ● | Our possible need for and availability of additional financing, and our dependence on strategic relationships, among others; |
| ● | Other risks and factors identified from time to time in our reports filed with the SEC. Refer to Part I, Item 1A — Risk Factors. |
Some other factors, such as market, operational, liquidity, interest rate, equity and other risks, are described elsewhere in this Annual Report on Form 10-K. Factors relating to the regulation and supervision of our Company are also described or incorporated in this report. There are other factors besides those described or incorporated in this report that could cause actual conditions, events or results to differ from those in the forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We do not undertake any obligation to update publicly or revise any forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.
5955
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk.Market risk is the risk that we will incur losses due to adverse changes in market rates and prices. We have exposure to market risk through our investment activities and our financing activities. Our primary market risk exposure is to changes in interest rates. We use both fixed and variable rate debt as sources of financing. We have not entered, and do not plan to enter, into any derivative financial instruments for trading or speculative purposes.
Interest Rate Risk.Interest rate risk is the risk that we will incur economic losses due to adverse changes in interest rates. Our exposure to interest rate changes primarily results from our significant holdings of fixed rate investments and from our financing activities. Our fixed maturity investments include U.S. and foreign government bonds, securities issued by government agencies, obligations of state and local governments and governmental authorities, corporate bonds and asset-backed securities, most of which are exposed to changes in prevailing interest rates.
We manage our exposure to risks associated with interest rate fluctuations through active review of our investment portfolio by our management and Board and consultation with third-party financial advisors. As a general matter, we do not attempt to match the durations of our assets with the durations of our liabilities, and the majority of our liabilities are “short tail.” Our goal is to maximize the total after-tax return on all of our investments. An important strategy that we employ to achieve this goal is to try to hold enough in cash and short-term investments in order to avoid liquidating longer-term investments to pay claims.
Based upon the results of interest rate sensitivity analysis, the following table shows the interest rate risk of our investments in fixed maturities, measured in terms of fair value (which is equal to the carrying value for all our fixed maturity securities).
|
|
|
|
|
|
|
| ||||||||||||
|
|
| -100 Basis |
|
|
|
|
| +100 Basis |
| |||||||||
|
|
| Point Change |
|
| No Change |
|
| Point Change |
| |||||||||
As of December 31, 2017 |
|
|
|
|
|
|
| ||||||||||||
| | | | | | | |||||||||||||
|
| | -100 Basis |
| |
|
| | +100 Basis | ||||||||||
| | | Point Change | | | No Change | | | Point Change | ||||||||||
As of December 31, 2022 | | | | | | | |||||||||||||
Estimated fair value |
| $ | 1,212,745 |
| $ | 1,172,026 |
| $ | 1,129,098 |
|
| $ | 1,092,151 |
| $ | 1,050,155 |
| $ | 1,007,772 |
Estimated increase (decrease) in fair value |
| $ | 40,719 |
| $ | — |
| $ | (42,928) |
|
| $ | 41,996 |
| $ | — |
| $ | (42,383) |
|
|
|
|
|
|
|
| ||||||||||||
As of December 31, 2016 |
|
|
|
|
|
|
| ||||||||||||
| | | | | | | |||||||||||||
As of December 31, 2021 | | | | | | | |||||||||||||
Estimated fair value |
| $ | 1,197,319 |
| $ | 1,154,269 |
| $ | 1,107,500 |
|
| $ | 1,261,399 |
| $ | 1,218,279 |
| $ | 1,174,068 |
Estimated increase (decrease) in fair value |
| $ | 43,050 |
| $ | — |
| $ | (46,769) |
|
| $ | 43,120 |
| $ | — |
| $ | (44,211) |
|
|
|
|
|
|
|
| ||||||||||||
With respect to floating rate debt, we are exposed to the effects of changes in prevailing interest rates. At December 31, 2017,2022, we had no debt outstanding under our credit facility. Assuming the full utilization of our current available credit facility, a 2.0% increase in the prevailing interest rate on our variable rate debt would result in interest expense increasing approximately $600 for 2017,2022, assuming that all of such debt is outstanding for the entire year.
In addition, in the current market environment, our investments can also contain liquidity risks.
Equity Risk.Equity risk is the risk that we will incur economic losses due to adverse changes in equity prices. Our exposure to changes in equity prices results from our holdings of common stock and mutual funds held to fund the executive deferred compensation plan. We continuously evaluate market conditions and we expect in the future to purchase additional equity securities. We principally manage equity price risk through industry and issuer diversification and asset allocation techniques.
6056
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
SAFETY INSURANCE GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| |
| Page |
Consolidated Financial Statements: |
|
| |
| |
Report | 58 |
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 238) | 62 |
| |
63 | |
| |
64 | |
| |
65 | |
| |
Statements of | 66 |
| |
67 | |
| |
| |
|
6157
Report of Independent Registered Public Accounting Firm
To the shareholders and the Board of Directors and Shareholders of Safety Insurance Group, Inc.:
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Safety Insurance Group, Inc. and subsidiaries (the "Company") as of December 31, 20172022 and December 31, 2016,and2021, the related consolidated statements of operations, comprehensive (loss) income, changes in shareholders’shareholders' equity, and cash flows, for each of the threetwo years in the period ended December 31, 2017, including2022, and the related notes and financial statementthe scheduleslisted in the index appearing underIndex at Item 15(a)(2)(collectively15 (collectively referred to as the “consolidated financial statements”"financial statements").We also have audited the Company'sCompany’s internal control over financial reporting as of December 31, 2017,2022, based on criteria established in Internal Control -— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidatedfinancial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20172022 and December 31, 2016,2021, and the results of theirits operations and theirits cash flows for each of the threetwo years in the period ended December 31, 20172022, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2022, based on criteria established in Internal Control -— Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company'sCompany’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting under the accompanying Item 9A. Controls and Procedures. Our responsibility is to express opinionsan opinion on these financial statements and an opinion on the Company’s consolidatedfinancial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidatedfinancial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidatedfinancial statements included performing procedures to assess the risks of material misstatement of the consolidatedfinancial statements, whether due to error or fraud, and performing procedures thatto respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidatedfinancial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidatedfinancial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i)(1) pertain to the maintenance of records that, in reasonable detail, accurately
62
and fairly reflect the transactions and dispositions of the assets of the company; (ii)(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
58
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii)(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Losses and Loss Adjustment Expense Reserves – Refer to Notes 2 and 12 to the financial statements
Critical Audit Matter Description
The Company establishes loss and loss adjustment expense reserves as balance sheet liabilities representing estimates of amounts needed to pay reported and unreported losses and the expenses associated with investigating and paying the losses, or loss adjustment expenses. The loss and loss adjustment expense reserves are determined in accordance with commonly accepted actuarial reserving techniques on the basis of the Company’s historical information and experience. In determining the loss and loss adjustment expense reserves, the Company analyzes historical data and estimates the impact of various loss development factors, such as the Company’s historical loss experience and that of the industry, trends in claims frequency and severity, the Company’s mix of business, the Company’s claims processing procedures, legislative enactments, judicial decisions, legal developments in imposition of damages, and changes and trends in general economic conditions, including the effects of inflation.
Given the subjectivity of estimating the ultimate cost to settle the liabilities for reported and unreported losses due to uncertainties caused by various factors including frequency and severity of claims, as well as future legislative, judicial, and legal uncertainties, performing audit procedures to evaluate whether the ultimate cost of loss and loss adjustment expense reserves were appropriately recorded as of December 31, 2022 required a high degree of auditor judgment and an increased extent of effort, including the need to involve our actuarial specialists.
How the Critical Audit Matter was Addressed in the Audit
Our audit procedures related to loss and loss adjustment expense reserves included the following, among others:
| 1. | We tested the effectiveness of the Company’s controls related to loss and loss adjustment expense reserves, including controls over inputs, methods, and assumptions used in the Company’s estimation process. |
| 2. | We tested the underlying data that served as the basis for the Company’s analysis, including historical claims, to test that the inputs to the actuarial estimate were complete and accurate. |
| 3. | With the assistance of our actuarial specialists, we evaluated the methods and assumptions used by the Company to estimate loss and loss adjustment expense reserves by: |
| a. | Assessing the reasonableness of the Company’s analysis, developing independent estimates of loss and loss adjustment expense reserves and comparing such estimates to the Company’s recorded loss and |
59
| loss adjustment expense reserves. |
| b. | Comparing the Company’s prior year estimates of expected incurred losses to actual experience during the current year to identify potential management bias in the determination of loss and loss adjustment expense reserves. |
Northeast Metrowest Insurance Agency, Inc. Acquisition – Refer to Note 2 to the Financial Statements
Critical Audit Matter Description
The Company completed the acquisition of Northeast Metrowest Insurance Agency, Inc. (“Northeast”) on December 1, 2022. The Company accounted for the acquisition of Northeast under the acquisition method of accounting for business combinations. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values, including customer relationship intangible assets. Management estimated the fair value of such intangible assets using an income approach that considered cash flows expected to be generated by the acquired business relationships, a weighted average cost of capital discount rate reflecting the relative risk of achieving the anticipated cash flows, profits, the time value of money and other relevant inputs. Changes in the assumptions could impact the amount allocated to acquired intangible assets and ultimately the amount recorded as goodwill.
Given the fair value determination of customer relationship intangible assets requires management to make significant estimates and assumptions regarding projected cash flows and discount rates, performing audit procedures to evaluate the reasonableness of those estimates and assumptions required a high degree of auditor judgment, and an increased extent of effort, including involving fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the fair value of distribution and customer relationship intangible assets acquired from Northeast included the following, among others:
| 1. | We tested the effectiveness of controls over the valuation methodology used for these acquired intangible assets, including management’s controls over assumptions used in developing estimated future cash flows, and discount rates used to present value cash flows. |
| 2. | We assessed the reasonableness of management’s forecasts by comparing the projection to historical cash flow results of Northeast, as well as to certain peer companies of Northeast. We also performed sensitivity analyses to evaluate the impact of changes in assumptions to the valuation of the customer relationship intangible assets. |
| 3. | We assessed the knowledge, skill, ability and objectivity of management’s valuation specialist and evaluated the work performed. |
| 4. | With the assistance of fair value specialists, we evaluated: |
| ● | The reasonableness of the valuation methodology, and |
| ● | The reasonableness of the discount rate used to present value the expected cash flows by: |
| a. | Testing the source information underlying the determination of the discount rate and testing mathematical accuracy of the calculation. |
| b. | Developing a range of independent estimates and comparing those to the discount rate selected by management to evaluate the inputs used in the calculation. |
| 5. | We evaluated whether the estimated cash flows were consistent with evidence obtained in other areas of the audit. |
60
| 6. | We tested the accuracy and evaluated the relevance of the data used by management on the date of the acquisition. |
/s/ PricewaterhouseCoopersDeloitte & Touche LLP
Boston, Massachusetts
February 28, 20182023
We have served as the Company’s auditor since 1983. 2021.
6361
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Safety Insurance Group, Inc.
Opinion on the Financial Statements
We have audited the consolidated statement of operations, comprehensive (loss) income, changes in shareholders’ equity and cash flows of Safety Insurance Group Inc and its subsidiaries (the “Company”) for the year ended December 31, 2020, including the related notes and schedules listed in the index appearing under Item 15 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of the Company for the year ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 26, 2021
We served as the Company’s auditor from 1983 to 2020.
62
Safety Insurance Group, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except share data)
|
|
|
|
|
|
|
|
| December 31, |
| December 31, | ||
|
| 2017 |
| 2016 | ||
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
Investments: |
|
|
|
|
|
|
Securities available for sale: |
|
|
|
|
|
|
Fixed maturities, at fair value (amortized cost: $1,156,697 and $1,142,663) |
| $ | 1,172,026 |
| $ | 1,154,269 |
Equity securities, at fair value (cost: $90,481 and $92,326) |
|
| 111,867 |
|
| 105,095 |
Other invested assets |
|
| 23,162 |
|
| 21,142 |
Total investments |
|
| 1,307,055 |
|
| 1,280,506 |
Cash and cash equivalents |
|
| 41,708 |
|
| 20,052 |
Accounts receivable, net of allowance for doubtful accounts |
|
| 190,649 |
|
| 187,696 |
Receivable for securities sold |
|
| 1,380 |
|
| 7,098 |
Accrued investment income |
|
| 8,876 |
|
| 8,858 |
Taxes recoverable |
|
| 908 |
|
| — |
Receivable from reinsurers related to paid loss and loss adjustment expenses |
|
| 24,776 |
|
| 29,504 |
Receivable from reinsurers related to unpaid loss and loss adjustment expenses |
|
| 83,085 |
|
| 83,724 |
Ceded unearned premiums |
|
| 32,175 |
|
| 28,585 |
Deferred policy acquisition costs |
|
| 72,202 |
|
| 70,996 |
Deferred income taxes |
|
| — |
|
| 3,083 |
Equity and deposits in pools |
|
| 28,246 |
|
| 24,675 |
Other assets |
|
| 16,219 |
|
| 13,469 |
Total assets |
| $ | 1,807,279 |
| $ | 1,758,246 |
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
Loss and loss adjustment expense reserves |
| $ | 574,054 |
| $ | 560,321 |
Unearned premium reserves |
|
| 428,257 |
|
| 418,033 |
Accounts payable and accrued liabilities |
|
| 60,701 |
|
| 66,805 |
Payable for securities purchased |
|
| 4,188 |
|
| 5,564 |
Payable to reinsurers |
|
| 13,801 |
|
| 13,502 |
Deferred income taxes |
|
| 2,917 |
|
| — |
Taxes payable |
|
| — |
|
| 1,110 |
Other liabilities |
|
| 22,345 |
|
| 22,185 |
Total liabilities |
|
| 1,106,263 |
|
| 1,087,520 |
|
|
|
|
|
|
|
Commitments and contingencies (Note 7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity |
|
|
|
|
|
|
Common stock: $0.01 par value; 30,000,000 shares authorized; 17,499,544 and 17,430,189 shares issued |
|
| 175 |
|
| 174 |
Additional paid-in capital |
|
| 189,714 |
|
| 184,549 |
Accumulated other comprehensive income, net of taxes |
|
| 24,269 |
|
| 15,843 |
Retained earnings |
|
| 570,693 |
|
| 553,995 |
Treasury stock, at cost: 2,279,570 shares |
|
| (83,835) |
|
| (83,835) |
Total shareholders’ equity |
|
| 701,016 |
|
| 670,726 |
Total liabilities and shareholders’ equity |
| $ | 1,807,279 |
| $ | 1,758,246 |
| | | | | | |
|
| December 31, |
| December 31, | ||
| | 2022 | | 2021 | ||
| | | | | | |
Assets | | | | | | |
Investments: | | | | | | |
Fixed maturities, available for sale, at fair value (amortized cost: $1,152,779 and $1,187,857, allowance for expected credit losses of $678 and $691) | | $ | 1,050,155 | | $ | 1,218,279 |
Equity securities, at fair value (cost: $231,444 and $211,848) | |
| 240,155 | |
| 264,945 |
Other invested assets | |
| 112,850 | |
| 87,911 |
Total investments | |
| 1,403,160 | |
| 1,571,135 |
Cash and cash equivalents | |
| 25,300 | |
| 63,603 |
Accounts receivable, net of allowance for expected credit losses of $1,446 and $1,808 | |
| 192,542 | |
| 170,953 |
Receivable for securities sold | |
| 877 | |
| 9,256 |
Accrued investment income | |
| 8,212 | |
| 7,401 |
Taxes recoverable | |
| — | |
| 1,508 |
Receivable from reinsurers related to paid loss and loss adjustment expenses | |
| 12,988 | |
| 18,234 |
Receivable from reinsurers related to unpaid loss and loss adjustment expenses | |
| 93,394 | |
| 90,667 |
Ceded unearned premiums | |
| 28,453 | |
| 23,795 |
Deferred policy acquisition costs | |
| 75,582 | |
| 73,024 |
Deferred income taxes | |
| 21,074 | |
| — |
Equity and deposits in pools | |
| 33,648 | |
| 33,592 |
Operating lease right-of-use-assets | |
| 23,336 | |
| 27,115 |
Goodwill | | | 17,093 | | | — |
Intangible assets | | | 7,856 | | | — |
Other assets | |
| 29,054 | |
| 27,108 |
Total assets | | $ | 1,972,569 | | $ | 2,117,391 |
| | | | | | |
Liabilities | | | | | | |
Loss and loss adjustment expense reserves | | $ | 549,598 | | $ | 570,651 |
Unearned premium reserves | |
| 433,375 | |
| 413,487 |
Accounts payable and accrued liabilities | |
| 73,875 | |
| 76,598 |
Payable for securities purchased | |
| 1,359 | |
| 16,477 |
Payable to reinsurers | |
| 11,444 | |
| 9,192 |
Deferred income taxes | | | — | | | 15,240 |
Taxes payable | | | 1,729 | | | — |
Debt | | | 35,000 | | | 30,000 |
Operating lease liabilities | | | 23,336 | | | 27,115 |
Other liabilities | |
| 30,854 | |
| 31,458 |
Total liabilities | |
| 1,160,570 | |
| 1,190,218 |
| | | | | | |
Commitments and contingencies (Note 8) | | | | | | |
| | | | | | |
Shareholders’ equity | | | | | | |
Common stock: $0.01 par value; 30,000,000 shares authorized; 17,879,095 and 17,813,370 shares issued | | | 179 | | | 178 |
Additional paid-in capital | |
| 222,049 | |
| 216,070 |
Accumulated other comprehensive (loss) income, net of taxes | |
| (80,538) | |
| 24,579 |
Retained earnings | |
| 815,309 | |
| 821,743 |
Treasury stock, at cost: 3,083,364 and 2,970,573 shares | |
| (145,000) | |
| (135,397) |
Total shareholders’ equity | |
| 811,999 | |
| 927,173 |
Total liabilities and shareholders’ equity | | $ | 1,972,569 | | $ | 2,117,391 |
The accompanying notes are an integral part of these financial statements.
6463
Safety Insurance Group, Inc. and Subsidiaries
Consolidated Statements of Operations
(Dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
| Years Ended December 31, | |||||||
|
| 2017 |
| 2016 |
| 2015 | |||
|
|
|
|
|
|
|
|
|
|
Net earned premiums |
| $ | 774,420 |
| $ | 755,760 |
| $ | 738,164 |
Net investment income |
|
| 38,758 |
|
| 38,413 |
|
| 40,534 |
Earnings from partnership investments |
|
| 2,082 |
|
| 3,185 |
|
| 2,387 |
Net realized gains (losses) on investments |
|
| 6,036 |
|
| 5,559 |
|
| (469) |
Net impairment losses on investments (a) |
|
| (256) |
|
| (798) |
|
| (796) |
Finance and other service income |
|
| 18,073 |
|
| 17,703 |
|
| 18,133 |
Total revenue |
|
| 839,113 |
|
| 819,822 |
|
| 797,953 |
|
|
|
|
|
|
|
|
|
|
Losses and loss adjustment expenses |
|
| 503,887 |
|
| 493,433 |
|
| 612,569 |
Underwriting, operating and related expenses |
|
| 248,436 |
|
| 233,017 |
|
| 213,939 |
Interest expense |
|
| 90 |
|
| 90 |
|
| 90 |
Total expenses |
|
| 752,413 |
|
| 726,540 |
|
| 826,598 |
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
| 86,700 |
|
| 93,282 |
|
| (28,645) |
Income tax expense (credit) |
|
| 24,313 |
|
| 28,697 |
|
| (14,792) |
Net income (loss) |
| $ | 62,387 |
| $ | 64,585 |
| $ | (13,853) |
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per weighted average common share: |
|
|
|
|
|
|
|
|
|
Basic |
| $ | 4.13 |
| $ | 4.29 |
| $ | (0.93) |
Diluted |
| $ | 4.10 |
| $ | 4.27 |
| $ | (0.93) |
|
|
|
|
|
|
|
|
|
|
Cash dividends paid per common share |
| $ | 3.00 |
| $ | 2.80 |
| $ | 2.80 |
|
|
|
|
|
|
|
|
|
|
Number of shares used in computing earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
Basic |
|
| 15,010,751 |
|
| 14,946,453 |
|
| 14,866,607 |
Diluted |
|
| 15,135,348 |
|
| 15,032,263 |
|
| 14,866,607 |
| | | | | | | | | |
| | Years Ended December 31, | |||||||
|
| 2022 |
| 2021 |
| 2020 | |||
| | | | | | | | | |
Net earned premiums | | $ | 758,505 | | $ | 774,328 | | $ | 771,078 |
Net investment income | |
| 46,725 | |
| 44,135 | |
| 41,045 |
Earnings from partnership investments | | | 12,484 | | | 19,829 | | | 6,901 |
Net realized gains on investments | |
| 9,190 | |
| 14,885 | |
| 957 |
Change in unrealized gains on equity securities | | | (44,386) | | | 16,130 | | | 10,449 |
Credit loss benefit (expense) | | | 14 | | | 363 | | | (1,054) |
Commission income | | | 566 | | | — | | | — |
Finance and other service income | |
| 14,461 | |
| 15,241 | |
| 16,872 |
Total revenue | | | 797,559 | | | 884,911 | | | 846,248 |
| | | | | | | | | |
Losses and loss adjustment expenses | |
| 491,979 | |
| 461,727 | |
| 404,556 |
Underwriting, operating and related expenses | |
| 245,145 | |
| 258,392 | |
| 266,482 |
Other expense | |
| 330 | |
| — | |
| — |
Interest expense | |
| 524 | |
| 522 | |
| 440 |
Total expenses | |
| 737,978 | |
| 720,641 | |
| 671,478 |
| | | | | | | | | |
Income before income taxes | | | 59,581 | | | 164,270 | | | 174,770 |
Income tax expense | |
| 13,020 | |
| 33,560 | |
| 36,559 |
Net income | | $ | 46,561 | | $ | 130,710 | | $ | 138,211 |
| | | | | | | | | |
Earnings per weighted average common share: | | | | | | | | | |
Basic | | $ | 3.17 | | $ | 8.85 | | $ | 9.25 |
Diluted | | $ | 3.15 | | $ | 8.80 | | $ | 9.18 |
| | | | | | | | | |
Cash dividends paid per common share | | $ | 3.60 | | $ | 3.60 | | $ | 3.60 |
| | | | | | | | | |
Number of shares used in computing earnings per share: | | | | | | | | | |
Basic | |
| 14,607,483 | |
| 14,828,736 | |
| 15,002,755 |
Diluted | |
| 14,710,611 | |
| 14,925,726 | |
| 15,119,027 |
|
|
The accompanying notes are an integral part of these financial statements.
6564
Safety Insurance Group, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
| Years Ended December 31, | |||||||
|
| 2017 |
| 2016 |
| 2015 | |||
Net income (loss) |
| $ | 62,387 |
| $ | 64,585 |
| $ | (13,853) |
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) during the period, net of income tax expense (benefit) of $6,027 , $1,611 , and ($6,761). |
|
| 12,349 |
|
| 2,992 |
|
| (12,556) |
Reclassification adjustment for (gains) losses included in net income, net of income tax (expense) benefit of ($2,112), ($1,945), and $164 . |
|
| (3,923) |
|
| (3,613) |
|
| 305 |
Unrealized gains (losses) on securities available for sale |
|
| 8,426 |
|
| (621) |
|
| (12,251) |
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
| $ | 70,813 |
| $ | 63,964 |
| $ | (26,104) |
| | | | | | | | | |
| | Years Ended December 31, | |||||||
|
| 2022 |
| 2021 | | 2020 | |||
Net income | | $ | 46,561 | | $ | 130,710 | | $ | 138,211 |
| | | | | | | | | |
Other comprehensive (loss) income, net of tax: | | | | | | | | | |
Unrealized holding (losses) gains during the period, net of income tax (benefit) expense of ($26,013), ($4,569), and $6,936 . | |
| (97,857) | |
| (17,189) | |
| 26,093 |
Reclassification adjustment for net realized gains on investments included in net income, net of income tax expense of ($1,930), ($3,126), and ($201). | |
| (7,260) | |
| (11,759) | |
| (756) |
Other comprehensive (loss) income, net of tax: | |
| (105,117) | |
| (28,948) | |
| 25,337 |
| | | | | | | | | |
Comprehensive (loss) income | | $ | (58,556) | | $ | 101,762 | | $ | 163,548 |
The accompanying notes are an integral part of these financial statements.
6665
Safety Insurance Group, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| Other |
|
|
|
|
|
|
|
|
| |
|
|
|
|
| Additional |
| Comprehensive |
|
|
|
|
|
|
| Total | |||
|
| Common |
| Paid-in |
| Income, |
| Retained |
| Treasury |
| Shareholders’ | ||||||
|
| Stock |
| Capital |
| Net of Taxes |
| Earnings |
| Stock |
| Equity | ||||||
Balance at December 31, 2014 |
| $ | 173 |
|
| 175,583 |
|
| 28,715 |
|
| 587,647 |
|
| (83,835) |
| $ | 708,283 |
Net loss |
|
|
|
|
|
|
|
|
|
|
| (13,853) |
|
|
|
|
| (13,853) |
Unrealized losses on securities available for sale, net of deferred federal income taxes |
|
|
|
|
|
|
|
| (12,251) |
|
|
|
|
|
|
|
| (12,251) |
Restricted share awards issued |
|
| 1 |
|
| 246 |
|
|
|
|
|
|
|
|
|
|
| 247 |
Recognition of employee share-based compensation, net of deferred federal income taxes |
|
|
|
|
| 3,787 |
|
|
|
|
|
|
|
|
|
|
| 3,787 |
Exercise of options, net of federal income taxes |
|
|
|
|
| 280 |
|
|
|
|
|
|
|
|
|
|
| 280 |
Dividends paid and accrued |
|
|
|
|
|
|
|
|
|
|
| (41,994) |
|
|
|
|
| (41,994) |
Acquisition of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
| - |
Balance at December 31, 2015 |
|
| 174 |
|
| 179,896 |
|
| 16,464 |
|
| 531,800 |
|
| (83,835) |
|
| 644,499 |
Net income |
|
|
|
|
|
|
|
|
|
|
| 64,585 |
|
|
|
|
| 64,585 |
Unrealized losses on securities available for sale, net of deferred federal income taxes |
|
|
|
|
|
|
|
| (621) |
|
|
|
|
|
|
|
| (621) |
Restricted share awards issued |
|
|
|
|
| 280 |
|
|
|
|
|
|
|
|
|
|
| 280 |
Recognition of employee share-based compensation, net of deferred federal income taxes |
|
|
|
|
| 4,122 |
|
|
|
|
|
|
|
|
|
|
| 4,122 |
Exercise of options, net of federal income taxes |
|
|
|
|
| 251 |
|
|
|
|
|
|
|
|
|
|
| 251 |
Dividends paid and accrued |
|
|
|
|
|
|
|
|
|
|
| (42,390) |
|
|
|
|
| (42,390) |
Acquisition of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
| - |
Balance at December 31, 2016 |
|
| 174 |
|
| 184,549 |
|
| 15,843 |
|
| 553,995 |
|
| (83,835) |
|
| 670,726 |
Net income |
|
|
|
|
|
|
|
|
|
|
| 62,387 |
|
|
|
|
| 62,387 |
Unrealized gains on securities available for sale, net of deferred federal income taxes |
|
|
|
|
|
|
|
| 8,426 |
|
|
|
|
|
|
|
| 8,426 |
Restricted share awards issued |
|
| 1 |
|
| 362 |
|
|
|
|
|
|
|
|
|
|
| 363 |
Recognition of employee share-based compensation, net of deferred federal income taxes |
|
|
|
|
| 4,803 |
|
|
|
|
|
|
|
|
|
|
| 4,803 |
Exercise of options, net of federal income taxes |
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
| - |
Dividends paid and accrued |
|
|
|
|
|
|
|
|
|
|
| (45,689) |
|
|
|
|
| (45,689) |
Acquisition of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
| - |
Balance at December 31, 2017 |
| $ | 175 |
| $ | 189,714 |
| $ | 24,269 |
| $ | 570,693 |
| $ | (83,835) |
| $ | 701,016 |
| | | | | | | | | | | | | | | | | | |
|
|
| |
|
| |
| Accumulated |
|
| |
|
| |
|
| | |
| | | | | | | | Other | | | | | | | | | | |
| | | | | Additional | | Comprehensive | | | | | | | | Total | |||
| | Common | | Paid-in | | (Loss) Income, | | Retained | | Treasury | | Shareholders’ | ||||||
| | Stock | | Capital | | Net of Taxes | | Earnings | | Stock | | Equity | ||||||
Balance at December 31, 2019 | | $ | 177 | | | 202,321 | | | 28,190 | |
| 661,553 | | | (83,835) | | $ | 808,406 |
Net income | | | — | | | — | |
| — | | | 138,211 | | | — | | | 138,211 |
Unrealized gains on securities available for sale, net of deferred federal income taxes | | | — | |
| — | | | 25,337 | | | — | | | — | |
| 25,337 |
Restricted share awards issued | |
| 1 | |
| 528 | | | — | | | — | | | — | |
| 529 |
Recognition of employee share-based compensation | | | — | |
| 6,930 | | | — | | | — | | | — | |
| 6,930 |
Dividends paid and accrued | | | — | | | — | | | — | |
| (54,735) | | | — | |
| (54,735) |
Acquisition of treasury stock | | | — | | | — | | | — | | | — | | | (39,999) | | | (39,999) |
Balance at December 31, 2020 | | | 178 | | | 209,779 | | | 53,527 | | | 745,029 | | | (123,834) | | | 884,679 |
Net income | | | — | | | — | |
| — | | | 130,710 | | | — | | | 130,710 |
Unrealized gains on securities available for sale, net of deferred federal income taxes | |
| — | |
| — | | | (28,948) | | | — | | | — | |
| (28,948) |
Restricted share awards issued | | | — | |
| 475 | | | — | | | — | | | — | |
| 475 |
Recognition of employee share-based compensation | | | — | |
| 5,816 | | | — | | | — | | | — | |
| 5,816 |
Dividends paid and accrued | | | — | | | — | | | — | |
| (53,996) | | | — | |
| (53,996) |
Acquisition of treasury stock | | | — | | | — | | | — | | | — | | | (11,563) | |
| (11,563) |
Balance at December 31, 2021 | | | 178 | | | 216,070 | | | 24,579 | |
| 821,743 | | | (135,397) | |
| 927,173 |
Net income | | | — | | | — | |
| — | | | 46,561 | | | — | |
| 46,561 |
Unrealized losses on securities available for sale, net of deferred federal income taxes | |
| — | |
| — | | | (105,117) | | | — | | | — | |
| (105,117) |
Restricted share awards issued | | | 1 | |
| — | | | — | | | — | | | — | |
| 1 |
Recognition of employee share-based compensation | | | — | |
| 5,979 | | | — | | | — | | | — | |
| 5,979 |
Dividends paid and accrued | | | — | | | — | | | — | |
| (52,995) | | | — | |
| (52,995) |
Reissuance of treasury stock | | | | | | | | | | | | | | | 5,000 | | | 5,000 |
Acquisition of treasury stock | | | — | | | — | | | — | | | — | | | (14,603) | | | (14,603) |
Balance at December 31, 2022 | | $ | 179 | | $ | 222,049 | | $ | (80,538) | | $ | 815,309 | | $ | (145,000) | | $ | 811,999 |
The accompanying notes are an integral part of these financial statements.
6766
Safety Insurance Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
| Years Ended December 31, | |||||||
|
| 2017 |
| 2016 |
|
| 2015 | ||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | 62,387 |
| $ | 64,585 |
| $ | (13,853) |
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Investment amortization, net |
|
| 6,962 |
|
| 5,388 |
|
| 4,962 |
Fixed Asset depreciation, net |
|
| 5,037 |
|
| 4,382 |
|
| 3,908 |
Stock based compensation |
|
| 5,166 |
|
| 4,303 |
|
| 3,727 |
Provision for deferred income taxes |
|
| 2,085 |
|
| 1,681 |
|
| 552 |
Net realized (gains) losses on investments |
|
| (6,036) |
|
| (5,559) |
|
| 469 |
Net impairment losses on investments |
|
| 256 |
|
| 798 |
|
| 796 |
Earnings from partnership investments |
|
| (2,082) |
|
| (3,185) |
|
| (2,387) |
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (2,953) |
|
| (9,129) |
|
| (3,035) |
Accrued investment income |
|
| (18) |
|
| 64 |
|
| 1,373 |
Receivable from reinsurers |
|
| 5,367 |
|
| (3,995) |
|
| (41,721) |
Ceded unearned premiums |
|
| (3,590) |
|
| (5,363) |
|
| (3,584) |
Deferred policy acquisition costs |
|
| (1,206) |
|
| (2,059) |
|
| (1,608) |
Taxes recoverable |
|
| (908) |
|
| 15,497 |
|
| (15,497) |
Other assets |
|
| (5,400) |
|
| 348 |
|
| (726) |
Loss and loss adjustment expense reserves |
|
| 13,733 |
|
| 6,344 |
|
| 71,965 |
Unearned premium reserves |
|
| 10,224 |
|
| 16,072 |
|
| 11,600 |
Taxes payable |
|
| (1,110) |
|
| — |
|
| — |
Accounts payable and accrued liabilities |
|
| (6,333) |
|
| 14,068 |
|
| (12,423) |
Payable to reinsurers |
|
| 299 |
|
| 1,955 |
|
| 3,894 |
Other liabilities |
|
| 160 |
|
| (7,371) |
|
| 14,479 |
Net cash provided by operating activities |
|
| 82,040 |
|
| 98,824 |
|
| 22,891 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
Fixed maturities purchased |
|
| (205,226) |
|
| (295,211) |
|
| (227,328) |
Equity securities purchased |
|
| (27,440) |
|
| (30,060) |
|
| (26,658) |
Other invested assets purchased |
|
| (7,492) |
|
| (5,248) |
|
| (4,824) |
Proceeds from sales and paydowns of fixed maturities |
|
| 151,071 |
|
| 99,682 |
|
| 150,932 |
Proceeds from maturities, redemptions, and calls of fixed maturities |
|
| 37,868 |
|
| 99,883 |
|
| 110,189 |
Proceed from sales of equity securities |
|
| 34,664 |
|
| 46,620 |
|
| 24,380 |
Proceeds from other invested assets redeemed |
|
| 7,589 |
|
| 4,992 |
|
| 1,195 |
Fixed assets purchased |
|
| (5,958) |
|
| (4,910) |
|
| (4,041) |
Net cash (used for) provided by investing activities |
|
| (14,924) |
|
| (84,252) |
|
| 23,845 |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
Proceeds from stock options exercised |
|
| — |
|
| 257 |
|
| 278 |
Excess tax expense from stock options exercised |
|
| — |
|
| (6) |
|
| 1 |
Dividends paid to shareholders |
|
| (45,460) |
|
| (42,265) |
|
| (41,976) |
Net cash used for financing activities |
|
| (45,460) |
|
| (42,014) |
|
| (41,697) |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
| 21,656 |
|
| (27,442) |
|
| 5,039 |
Cash and cash equivalents at beginning of year |
|
| 20,052 |
|
| 47,494 |
|
| 42,455 |
Cash and cash equivalents at end of period |
| $ | 41,708 |
| $ | 20,052 |
| $ | 47,494 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
|
Federal and state income taxes |
| $ | 23,721 |
| $ | 9,826 |
| $ | 89 |
Interest |
| $ | 75 |
| $ | 75 |
| $ | 75 |
| | | | | | | | | |
| | Year Ended December 31, | |||||||
|
| 2022 |
| 2021 |
| | 2020 | ||
Cash flows from operating activities: | | | | | | | | | |
Net income | | $ | 46,561 | | $ | 130,710 | | $ | 138,211 |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | |
Investment amortization, net | |
| 1,693 | |
| 4,234 | |
| 6,541 |
Fixed asset depreciation, net | |
| 6,610 | |
| 6,896 | |
| 7,527 |
Stock based compensation | | | 5,980 | | | 6,292 | | | 7,459 |
(Credit) provision for deferred income taxes | |
| (8,371) | |
| 5,323 | |
| 5,159 |
Net realized gains on investments | |
| (9,190) | |
| (14,885) | |
| (957) |
Credit loss (benefit) expense | | | (14) | | | (363) | | | 1,054 |
Earnings from partnership investments | |
| (8,388) | |
| (13,896) | |
| (1,932) |
Change in net unrealized gains on equity securities | | | 44,386 | | | (16,130) | | | (10,449) |
Changes in assets and liabilities: | | | | | | | | | |
Accounts receivable, net | |
| (21,589) | |
| 8,194 | |
| 14,222 |
Accrued investment income | |
| (811) | |
| 644 | |
| 359 |
Receivable from reinsurers | |
| 2,519 | |
| 10,842 | |
| 13,948 |
Ceded unearned premiums | |
| (4,658) | |
| (1,389) | |
| 12,776 |
Deferred policy acquisition costs | |
| (2,558) | |
| 1,938 | |
| (675) |
Taxes recoverable/payable | | | 3,237 | | | (1,229) | | | 724 |
Other assets | |
| (6,477) | |
| (3,346) | |
| (15) |
Loss and loss adjustment expense reserves | |
| (21,053) | |
| 3,070 | |
| (42,985) |
Unearned premium reserves | |
| 19,888 | |
| (8,414) | |
| (20,318) |
Accounts payable and accrued liabilities | |
| (2,680) | |
| (2,876) | |
| 4,310 |
Payable to reinsurers | |
| 2,252 | |
| 956 | |
| (4,675) |
Other liabilities | |
| (3,011) | |
| 24,823 | |
| (20,824) |
Net cash provided by operating activities | |
| 44,326 | |
| 141,394 | |
| 109,460 |
| | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | |
Fixed maturities purchased | |
| (215,092) | |
| (355,561) | |
| (217,269) |
Short term investments purchased | |
| — | |
| — | |
| (441) |
Equity securities purchased | |
| (52,192) | |
| (59,296) | |
| (49,326) |
Other invested assets purchased | |
| (20,204) | |
| (32,814) | |
| (11,868) |
Proceeds from sales and paydowns of fixed maturities | |
| 154,491 | |
| 213,665 | |
| 126,555 |
Proceeds from maturities, redemptions, and calls of fixed maturities | |
| 86,406 | |
| 144,910 | |
| 86,390 |
Proceed from sales of equity securities | |
| 43,348 | |
| 26,724 | |
| 34,542 |
Proceeds from other invested assets redeemed | | | 2,933 | | | 4,608 | | | 5,839 |
Acquisition, net of cash received | | | (17,586) | | | — | | | — |
Fixed assets purchased | |
| (2,092) | |
| (8,225) | |
| (9,946) |
Net cash used for investing activities | |
| (19,988) | |
| (65,989) | |
| (35,524) |
| | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | |
Proceeds from FHLB loan | |
| 5,000 | |
| — | |
| 30,000 |
Dividends paid to shareholders | |
| (53,038) | |
| (54,008) | |
| (54,575) |
Acquisition of treasury stock | | | (14,603) | | | (11,563) | | | (39,999) |
Net cash used for financing activities | |
| (62,641) | |
| (65,571) | |
| (64,574) |
| | | | | | | | | |
Net decrease in cash and cash equivalents | |
| (38,303) | |
| 9,834 | |
| 9,362 |
Cash and cash equivalents at beginning of year | |
| 63,603 | |
| 53,769 | |
| 44,407 |
Cash and cash equivalents at end of period | | $ | 25,300 | | $ | 63,603 | | $ | 53,769 |
| | | | | | | | | |
Supplemental disclosure of cash flow information: | | | | | | | | | |
Cash paid during the year for: | | | | | | | | | |
Federal and state income taxes | | $ | 19,119 | | $ | 29,190 | | $ | 31,080 |
Interest | | $ | 507 | | $ | 507 | | $ | 388 |
The accompanying notes are an integral part of these financial statements.
6867
1. | Basis of Presentation |
The consolidated financial statements have been prepared on the basis of accounting principles generally accepted in the United States of America (“GAAP”). The consolidated financial statements include Safety Insurance Group, Inc. and its subsidiaries (the “Company”). The subsidiaries consist of Safety Insurance Company, Safety Indemnity Insurance Company, Safety Property and Casualty Insurance Company, Safety Asset Management CorporationNortheast Insurance Company, Safety Northeast Insurance Agency, Inc. (“SAMC”SNIA”), and Safety Management Corporation (“SMC”), which is SAMC’sSNIA’s holding company. All intercompany transactions have been eliminated.
The Company was incorporated on June 25, 2001 in the State of Delaware. On October 16, 2001, the Company acquired all of the issued and outstanding common stock of Thomas Black Corporation (“TBC”) and its property and casualty subsidiaries. TBC subsequently merged with and into Safety Insurance Group, Inc. with Safety Insurance Group, Inc. being the corporation surviving the merger.
The Company is a leading provider of property and casualty insurance, focused primarily on the Massachusetts market. The Company’s principal product line is private passenger automobile insurance, which accounted for 56.7%52.0% of its direct written premiums in 2017.2022. The Company primarily operates through its insurance company subsidiaries, Safety Insurance Company, Safety Indemnity Insurance Company, and Safety Property and Casualty Insurance Company, and Safety Northeast Insurance Company (together referred to as the “Insurance Subsidiaries”).
The Insurance Subsidiaries began writing private passenger automobile and homeowners insurance in New Hampshire during 2008, personal umbrella insurance in New Hampshire during 2009, and commercial automobile insurance in New Hampshire during 2011. The Insurance Subsidiaries began writing all of these lines of business in Maine during 2016.
2.SummarySafety Northeast Insurance Agency, Inc., was established on December 1, 2022, when the Company acquired the assets and operations of Significant Accounting PoliciesNortheast Metrowest Insurance Agency, Inc. (“Northeast / Metrowest”), an independent insurance agency, through its wholly-owned subsidiary, SMC. SNIA provides personal and commercial property and casualty insurance products to customers on behalf of the Insurance Subsidiaries and third-party insurance carriers. The Company conducted business with Northeast / Metrowest prior to its acquisition. During the eleven months prior to December 1, 2022, all commissions paid to Northeast / Metrowest were reflected as expenses and were conducted at standard market rates.
As part of the purchase of SNIA, the Company paid cash, reissued treasury stock of $5,000 and incurred a contingent liability of $2,407, included in other liabilities, which is expected to be paid one year after the transaction.
Management has assessed and concluded that there were no conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the consolidated financial statements were issued.
2. | Summary of Significant Accounting Policies |
Investments
Investments in fixed maturities, available‑for‑sale, which include taxable and non‑non-taxable bonds and redeemable preferred stocks, are reported at fair value. Fair values for fixed maturity securities are based on estimates obtained from independent pricing services. Unrealized gains or losses on fixed maturity securities reported at fair value are excluded from earnings and reported in a separate component of shareholder’s equity known as “accumulated other comprehensive income net of taxes” until realized. For fixed maturities that the Company does not intend to sell or for which it is more likely than not that the Company would not be required to sell before an anticipated recovery in value, the Company separates the credit loss component of the impairment from the amount related to all other factors and reports the credit loss component as credit loss expense. The impairment related to all other factors (non-credit factors) is reported in accumulated other comprehensive income. The allowance for expected credit losses is adjusted for any additional credit losses and
68
subsequent recoveries. Upon recognizing a credit loss, the cost basis is not adjusted. See Note 3 for further details of the Company’s accounting for impairments of available-for-sale investments.
Investments in equity securities, available‑for‑sale, which include interests in common stocks, mutual funds and a real estate investment trust (“REIT”), are reported at fair value. Fair values for fixed maturity securities are based on estimates obtained from independent pricing services. Fair values for equity securities are derived from external market quotations, with the exception of the REIT whose fair value was determined using the trust’s net asset value obtained from its audited financial statements. Short‑term investments, which consist of U.S. TreasuryChanges in unrealized gains or losses on equity securities are reported at amortized cost, which approximates fair value. recognized in earnings.
Other long‑term investmentsinvested assets consist of investments in limited partnerships. The partnership interest is accounted for using the equity method of accounting and recorded in earnings from partnership investments. The carrying value of this investment isthese investments are written down, or impaired, to fair value when a decline in value is considered to be other‑than‑temporary.other-than-temporary. In applying the equity method (including assessment for other‑than‑temporaryother-than-temporary impairment), the Company uses financial information provided by the investee, generally on a three month lag. Unrealized gains or losses on fixed maturity and equity securities reported at fair value are excluded from earnings and reported in a separate component of shareholders’ equity, known as “Accumulated other comprehensive income, net of taxes,” until realized.
Realized gains or losses on the sale or maturity of investments are determined based on the specific cost identification method. Fixed maturities and equity securities that experience declines in value that are other‑than‑temporary are written down to fair value with a corresponding charge to net impairment losses on investments.
Investment income is recognized on an accrual basis of accounting. Bonds not backed by other loans are amortized using the interest method. Loan‑backedLoan-backed bonds and structured securities are amortized using the interest method and significant changes in estimated cash flows from the original purchase assumptions are accounted for using the retrospective method.
69
Cash and Cash Equivalents
Cash and cash equivalents includes money market accounts and United States (“U.S.”) Treasury bills with original maturities of three months or less from the date of purchase. U.S. Treasury bills are stated at amortized cost, which approximates fair value.
Accounts Receivable
Amounts included in accounts receivable represent premiums as well as finance charges, the majority of which are both billed on a monthly installment basis. Accounts receivable are stated net of allowances for doubtful accounts. At December 31, 20172022 and 2016,2021, these allowances were $414$1,446 and $435,$1,808, respectively. Uncollected premium balances over ninety days past due are written off.
Deferred Policy Acquisition Costs
Amounts that vary with and are primarily related to the successful acquisition of a new or renewal insurance contract, principally commissions and premium taxes, are deferred and amortized ratably over the effective period of the policies.policy. All other acquisition expenses are expensed as incurred. Deferred policy acquisition costs are reviewed to determine if they are recoverable from future income, and if not, are charged to expense. Future investment income attributable to related premiums is not taken into account in measuring the recoverability of the carrying value of this asset. Amortization of acquisition costs in the amount of $144,703, $141,540,$146,013, $146,573 and $138,239 was charged to$146,955 were included in underwriting, operating and other expenses for the years ended 2017, 20162022, 2021 and 2015,2020, respectively.
Equity and Deposits in Pools
Equity and deposits in pools represents the net receivable amounts from the residual market mechanisms, Commonwealth Automobile Reinsurers (“CAR”) for automobile and Massachusetts Property Insurance Underwriting Association (“FAIR Plan”) for homeownerhomeowners insurance in Massachusetts. See Note 911 for a discussion of the Company’s accounting for amounts assumed from residual markets.
69
Equipment and Leasehold Improvements
Property, equipment, leasehold improvements, and software which are included in other assets are carried at cost less accumulated depreciation. Depreciation is provided using the straight‑straight- line or accelerated method over the estimated useful lives of the related assets, which range from 3 to 10 years. Amortization of leasehold improvements is provided using the straight‑linestraight-line method over the term of the lease. The costs of computer software developed or obtained for internal use are capitalized and amortized over the estimated life of the business system, beginning when the software is ready for its intended use. Maintenance and repairs are charged to expense as incurred.incurred
Business Combinations
The Company accounts for acquisitions of entities that qualify as businesses using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations. Purchase consideration is allocated to the assets acquired, including customer relationship intangible assets, and liabilities assumed based on their estimated fair values at acquisition. Management estimated the fair value of such intangible assets using an income approach that considered cash flows expected to be generated by the acquired business relationships, a weighted average cost of capital discount rate reflecting the relative risk of achieving the anticipated cash flows, profits, the time value of money, and other relevant inputs. The excess of the total purchase consideration over the fair value of the identified net assets acquired is recognized as goodwill. The results of acquired businesses are included in the results of operations beginning from the date of acquisition. Acquisition related costs are expensed as incurred. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the allocation of purchase consideration and to the fair values of assets acquired and liabilities assumed to the extent that additional information becomes available. After this period, any subsequent adjustments are recorded in earnings.
Goodwill
Goodwill generated through acquisition is carried at cost, net of impairments. Goodwill is not amortized but is reviewed for impairment at least annually or more frequently when indicators of potential impairment exist. Management first evaluates impairment of goodwill by assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If after performing the qualitative assessment, management determines it is more likely than not that the fair value of the reporting unit is less than its carrying amount, a quantitative assessment to determine the fair value of the reporting unit. Management’s determination of the fair value of the reporting unit incorporates multiple inputs into discounted cash flow calculations, including levels of economic capital required to support the business, future business growth, earnings projections, and the weighted average cost of capital used for purposes of discounting. Goodwill is impaired up to the amount that the carrying value of the reporting unit exceeds the fair value. The Company did not recognize any goodwill impairments during the year ended December 31, 2022.
Intangible Assets
Acquired intangible assets are amortized over their useful lives on a straight-line basis over the period of expected benefit, generally 10 years. The Company recognized $44 of amortization expense for the year ended December 31, 2022 and expects to recognize $786 of amortization expense annually. Intangible assets are assessed for impairment generally when events or circumstances indicate a potential impairment. If it is determined that the carrying amount of the asset is not recoverable, the asset is written down to fair value and an impairment loss is recognized. The Company did not identify any impairment indicators during the year ended December 31, 2022.
Revenue Recognition
The Company recognizes revenue under both ASC 944, Financial Services – Insurance (“ASC 944”) and ASC 606, Revenue from Contracts with Customers (“ASC 606”).
Premiums are earned over the terms of the respective policies, which are generally one year. Unearned premiums represent the portion of premiums written applicable to the unexpired terms of the policies.
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Ceded premiums are charged to income over the terms of the respective policies and the applicable term of the reinsurance contracts with third-party reinsurers. Ceded unearned premiums represent the unexpired portion of premiums ceded to CAR and other reinsurers.
Premiums received in advance of the policy effective date are recorded as a liability and not recognized as income until earned. Such amounts are included in accounts payable and accrued liabilities and totaled $12,858 and $10,630 at December 31, 2022 and 2021, respectively.
Finance and other service income primarily include revenues from premium installment charges, which are recognized when earned.
Commission revenue includes new and renewal commissions paid by insurance carriers. These commissions are earned at the later of the effective date or billing date, as all rights are passed to the insured, the obligation to pay a claim resides with the insurance carrier, and no further performance obligation exists for the Company. Under the terms of its contracts with insurance carriers, the Company can earn additional, variable commission revenue in the form of annual contingent underwriting commissions (“CUC”) based on the underwriting performance of the insurance book of business. Each carrier contract and related CUC is calculated independently. Under ASC 606, the Company must estimate the amount of consideration that will be received in the coming year such that a significant reversal of revenue is not probable. As such, CUC is recognized as a contract asset as policies are issued using applicable premium and payout factors based on the estimated loss ratio from the contract.
Losses and Loss Adjustment Expenses
Liabilities for losses and loss adjustment expenses (“LAE”) include case basis estimates for open claims reported prior to year‑year-end and estimates of unreported claims and claim adjustment expenses, net of salvage and subrogation. The estimates are continually reviewed and modified to reflect current conditions, and any resulting adjustments are reflected in current operating results. Adjustments for anticipated salvage and subrogation are recorded on incurred and reported and incurred but not reported losses.
The Company determines its loss and LAE reserves estimate based upon the analysis of our actuaries. A reasonable estimate is derived by selecting a point estimate within a range of indications as calculated by our actuaries using generally accepted actuarial techniques. The key assumption in most actuarial analysis is that past patterns of frequency and severity will repeat in the future, unless a significant change in the factors described above takes place. Our key factors and resulting assumptions are the ultimate frequency and severity of claims, based upon the most recent ten years of claims reported to the Company, and the data reported to us to calculate our share of the residual market. For each accident year and each coverage within a line of business our actuaries calculate the ultimate losses incurred.
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Premiums and Unearned Premiums
Premiums are earned over the terms of the respective policies, which are generally one year. Unearned premiums represent the portion of premiums written applicable to the unexpired terms of the policies.
Ceded premiums are charged to income over the terms of the respective policies and the applicable term of the reinsurance contracts with third‑party reinsurers. Ceded unearned premiums represent the unexpired portion of premiums ceded to CAR and other reinsurers.
Premiums received in advance of the policy effective date are recorded as a liability and not recognized as income until earned. Such amounts are included in accounts payable and accrued liabilities and totaled $14,371 and $14,643 at December 31, 2017 and 2016, respectively.
Reinsurance
Liabilities for unearned premiums and unpaid losses are stated before deductions for ceded reinsurance. The ceded amounts are carried as receivables. Earned premiums are stated net of deductions for ceded reinsurance.
The Company, as primary insurer, will be required to pay losses in their entirety in the event that the reinsurers are unable to discharge their obligations under the reinsurance agreements.
Advertising Costs
Advertising costs are charged to expense when they are incurred. Total advertising costs were $2,216, $2,063$2,399, $2,232 and $1,906$2,311 for the years ended December 31, 2017, 2016,2022, 2021, and 2015, respectively.
Finance2020, respectively, and Other Service Income
Financeare included in underwriting, operating and other service income primarily include revenues from premium installment charges, which are recognized when earned.related expenses.
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Income Taxes
The Company and its subsidiaries file a consolidated U.S. federal income tax return. The method of allocation among members of the consolidated group is subject to a written agreement approved by the Board of Directors (the “Board”). The consolidated tax liability (benefit) is allocated on the basis of the members’ proportionate contribution to consolidated taxable income (loss).income.
Deferred income taxes are generally recognized when assets and liabilities have different values for financial statement and tax reporting purposes, and for other temporary taxable and deductible differences as defined by Accounting Standards Codification (“ASC”)ASC 740, Income Taxes. A valuation allowance is established where management has assessed that it is more likely than not that the Company will not be able to utilize the full deferred tax asset.
On December 22, 2017, the TCJA was enacted, which significantly amends the Internal Revenue Code of 1986. The TCJA, among other things, reduces the corporate tax rate from a statutory rate of 35% to 21%, imposes additional limitations on net operating losses and executive compensation, allows for the full expensing of certain capital expenditures, and enacts other changes impacting the insurance industry. The impact of the tax rate change has been recorded through the Statement of Operations for the year ended December 31, 2017.
The TCJA modified the provisions applicable to the determination of the tax basis of unpaid loss reserves. These modifications impact the payment pattern and applicable interest rate. The TCJA instructed the Treasury to provide discount factors and other guidance necessary to determine the necessary transition adjustment. This
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information has not been released; accordingly, we have applied the law existing prior to the enactment of the TCJA. These provisions would have no effect on the net deferred tax liability as of December 31, 2017 or the total tax expense for the year ended December 31, 2017.
Earnings per Weighted Average Common share
Basic earnings (loss) per weighted average common share (“EPS”) are calculated by dividing net income (loss) by the weighted average number of basic common shares outstanding during the period. Diluted earnings (loss) per share amounts are based on the weighted average number of common shares including non-vested performance stock grants and the net effect of potentially dilutive common stock options.grants.
The following table sets forth the computation of basic and diluted EPS for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Years Ended December 31, |
|
|
|
|
|
|
|
| 2017 |
|
| 2016 |
|
| 2015 | |||
Earnings attributable to common shareholders - basic and diluted): |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations |
| $ | 62,387 |
|
| $ | 64,585 |
|
| $ | (13,853) |
|
Allocation of income for participating shares |
|
| (392) |
|
|
| (436) |
|
|
| — |
|
Net income (loss) from continuing operations attributed to common shareholders |
| $ | 61,995 |
|
| $ | 64,149 |
|
| $ | (13,853) |
|
Earnings per share denominator - basis and diluted |
|
|
|
|
|
|
|
|
|
|
|
|
Total weighted average common shares outstanding, including participating shares |
|
| 15,105,558 |
|
|
| 15,048,048 |
|
|
| 14,985,475 |
|
Less: weighted average participating shares |
|
| (94,807) |
|
|
| (101,595) |
|
|
| (118,868) |
|
Basic earnings per share denominator |
|
| 15,010,751 |
|
|
| 14,946,453 |
|
|
| 14,866,607 |
|
Common equivalent shares- stock options |
|
| — |
|
|
| 134 |
|
|
| — | (1) |
Common equivalent shares- non-vested performance stock grants |
|
| 124,597 |
|
|
| 85,676 |
|
|
| — | (2) |
Diluted earnings per share denominator |
|
| 15,135,348 |
|
|
| 15,032,263 |
|
|
| 14,866,607 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share |
| $ | 4.13 |
|
| $ | 4.29 |
|
| $ | (0.93) |
|
Diluted earnings (loss) per share |
| $ | 4.10 |
|
| $ | 4.27 |
|
| $ | (0.93) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed (loss) earnings attributable to common shareholders - basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations attributable to common shareholders -Basic |
| $ | 4.13 |
|
| $ | 4.29 |
|
| $ | (0.93) |
|
Dividends declared |
|
| (3.00) |
|
|
| (2.80) |
|
|
| (2.80) |
|
Undistributed earnings (loss) |
| $ | 1.13 |
|
| $ | 1.49 |
|
| $ | (3.73) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations attributable to common shareholders -Diluted |
| $ | 4.10 |
|
| $ | 4.27 |
|
| $ | (0.93) |
|
Dividends declared |
|
| (3.00) |
|
|
| (2.80) |
|
|
| (2.80) |
|
Undistributed earnings (loss) |
| $ | 1.10 |
|
| $ | 1.47 |
|
| $ | (3.73) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | |
| | Years Ended December 31, | |||||||
| | | 2022 | | | 2021 | | | 2020 |
Earnings attributable to common shareholders - basic and diluted: | | | | | | | | | |
Net income from continuing operations | | $ | 46,561 | | $ | 130,710 | | $ | 138,211 |
Allocation for participating shares | | | (205) | | | 575 | | | 636 |
Net income from continuing operations attributed to common shareholders | | $ | 46,356 | | $ | 131,285 | | $ | 138,847 |
Earnings per share denominator - basis and diluted | | | | | | | | | |
Total weighted average common shares outstanding, including participating shares | | | 14,672,234 | | | 14,894,532 | | | 15,071,955 |
Less: weighted average participating shares | | | (64,751) | | | (65,796) | | | (69,200) |
Basic earnings per share denominator | | | 14,607,483 | | | 14,828,736 | | | 15,002,755 |
Common equivalent shares- non-vested performance stock grants | |
| 103,128 | |
| 96,990 | |
| 116,272 |
Diluted earnings per share denominator | |
| 14,710,611 | |
| 14,925,726 | |
| 15,119,027 |
| | | | | | | | | |
Basic earnings per share | | $ | 3.17 | | $ | 8.85 | | $ | 9.25 |
Diluted earnings per share | | $ | 3.15 | | $ | 8.80 | | $ | 9.18 |
| | | | | | | | | |
Undistributed earnings attributable to common shareholders - basic and diluted: | | | | | | | | | |
Net income from continuing operations attributable to common shareholders -Basic | | $ | 3.17 | | $ | 8.85 | | $ | 9.25 |
Dividends declared | | | (3.60) | | | (3.60) | | | (3.60) |
Undistributed earnings | | $ | (0.43) | | $ | 5.25 | | $ | 5.65 |
| | | | | | | | | |
Net income from continuing operations attributable to common shareholders -Diluted | | $ | 3.15 | | $ | 8.80 | | $ | 9.18 |
Dividends declared | | | (3.60) | | | (3.60) | | | (3.60) |
Undistributed earnings | | $ | (0.45) | | $ | 5.20 | | $ | 5.58 |
(1) Excludes 1,587 of common equivalent shares related to stock options because their inclusion would be anti-dilutive due to the net loss of the Company.
(2) Excludes 46,805 of common equivalent shares related to non-vested performance shares because their inclusion would be anti-dilutive due to the net loss of the Company.
Diluted EPS excludes non vested performance stock optionsgrants with exercise prices and exercise tax benefits greater than the average market price of the Company’s common stock during the period because their inclusion would be anti‑dilutive.anti-dilutive. There were no anti‑dilutive stock options oranti-dilutive non-vested performance stock grants for the years ended December 31, 20172022, 2021 and 2016.2020.
Share‑BasedShare-Based Compensation
Accounting Standards Codification (“ASC”)ASC 718, Compensation —Stock Compensation (“ASC 718”), requires the Company to measure and recognize the cost of employee services received in exchange for an award of equity instruments. Under the provisions of ASC 718, share-based compensation cost is measured at the grant date, based on the fair value of the
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award, and is recognized as an expense over the requisite service period (generally the vesting period of the equity grant).
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See Note 67 for further information regarding share‑basedshare-based compensation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Recent Accounting Pronouncements
In February 2018,December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-02, 2019-12, Income Statement – Reporting ComprehensiveTaxes (Topic 740): Simplifying the Accounting for Income (Topic 220): ReclassificationTaxes, which removes certain exceptions to the general principles of Certain Tax EffectsASC 740, including exceptions to intra-period tax allocation where there is a loss from Accumulated Other Comprehensive Income.continuing operations, foreign subsidiary treatment and for calculating interim income taxes when the year-to-date loss exceeds the anticipated loss. The update also clarifies and amends existing guidance related to changes in tax laws, business combinations, employee stock plans, among others. The Company adopted the ASU provides guidance for an optional reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the newly-enacted federal corporate income tax rate aseffective January 1, 2021. As a result of the TCJA. The amount of the reclassification of the deferred tax in accumulated other comprehensive income is the difference between the historical corporate income tax rate and the newly enacted twenty-one percent corporate income tax rate. The new guidance will be effective for the Company’s year ending December 31, 2018. The Company is evaluating theadoption, there was no impact of ASU 2018-02 on its financial position and did not early adopt ASU 2018-02 for the year ended December 31, 2017.
In March 2017, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities, which requires certain premiums on callable debt securities to be amortized to the earliest call date. The amortization period for callable debt securities purchased at a discount will not be impacted. For public business entities with calendar year ends, the amendments in ASU No. 2017-08 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. If early adopted in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes the interim period. The Company is evaluating the impact of ASU 2017-08 on its financial position and results of operations. The extent of the impact will depend upon the nature and characteristics of the Company’s portfolio at the adoption date.
In December 2016, the FASB issued ASU 2016-19 - Technical Corrections and Improvements, which covers a wide range of Topics in the Accounting Standards Codification (ASC). The amendments in this Update represent changes to clarify, correct errors, or make minor improvements to the ASC, making it easier to understand and apply by eliminating inconsistencies and providing clarifications. The amendments generally fall into one of the following categories: amendments related to differences between original guidance and the ASC, guidance clarification and reference corrections, simplification, or minor improvements. Most of the amendments in ASU 2016-19 do not require transition guidance and are effective upon issuance of ASU 2016-19. The impact of the adoption of ASU 2016-19 was not material to the Company’s financial position, results of operations, cash flows, or disclosures.
In October 2016,On March 20, 2019, the FASB issued ASU 2016-17 - Consolidation (Topic 810): Interests Held through Related Parties thatSEC adopted amendments to Regulation S-K and related rules and forms to modernize and simplify certain disclosure requirements for public companies. The amendments are Under Common Control,intended to reduce the costs and burdens of the disclosure process and while continuing to require disclosure of all material information. The amended rules generally were effective on May 2, 2019 and reduced disclosures but some provisions added new requirements. On August 26, 2020, the SEC adopted additional amendments to Regulation S-K to modernize certain disclosure requirements relating to the description of business, legal proceedings and risk factors which amends the consolidation guidance on how a reporting entity that is the single decision maker of a variable interest entity (“VIE”) should treat indirect interestsare required to be disclosed in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE.Form 10-K. The Update requires the reporting entity, in determining whether it satisfies the second characteristic of a primary beneficiary, to include its indirect variable interests in a VIE held through related parties that are under common control on a proportionate basis as opposed to in their entirety. The amendments in this Update will be applied retrospectively andamended rules are effective for fiscal years beginningfilings on or after December 15, 2016, including interim periods within those fiscal years.November 9, 2020. The impactadoption of the adoption of ASU 2016-17 wasnew rules did not have a material toimpact on the Company’s financial position, results of operations, cash flows, or cash flows.disclosures.
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In August 2016,2018, the FASB issued ASU 2016-15, Statement of Cash Flows2018-13, Fair Value Measurement (Topic 230)820):Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 reduces diversity in practice in how certain transactions are classified in the statement of cash flows. The amendments in ASU 2016-15 provide guidance on specific cash flow issues including debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation Disclosure Framework—Changes to the effective interest rate ofDisclosure Requirements for Fair Value Measurement, which changes the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, and distributions received from equity method investees. ASU 2016-15 is effective for annual and interim periods beginning after December 15, 2017.fair value measurement disclosure requirements under ASC 820. The Company does not expect theCompany’s adoption of ASU 2016-15 to2018-13 on January 1, 2020 did not have a materialan impact to its Consolidated Statementson the fair value disclosures included in Note 16 – Fair Value of Cash Flows.Financial Instruments.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326):Measurement of Credit Losses on Financial Statements, which amends the guidance for the impairment of financial instruments and is expected to result in more timely recognition of impairment losses. The update introduces an impairment model referred to as the current expected credit loss (“CECL”) model. The impairment model is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses. The ASU is also intended to reduce the complexity of the current guidance by decreasing the number of credit impairment models that entities use to account for debt instruments. For public business entities that are SEC filers, the amendments in ASU No. 2016-13 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Entities may adopt the amendments in this update earlier as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is evaluatingadopted the impact of ASU 2016-13updated guidance on its financial position and results of operations with regards to potential credit losses on its Available For Sale investment portfolio. The extent ofJanuary 1, 2020 using the increase of credit losses is under evaluation, but will depend upon the nature and characteristics of the Company’s portfolio at the adoption date, and the macroeconomic conditions and forecasts at the date.
In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This ASC update requires all excess tax benefits and tax deficiencies to be recognized as income tax expense or benefit in the income statement, and be treated as discrete items in the reporting period in which they occur. Additionally, excess tax benefits will be classified with other income tax cash flows as an operating activity and cash paid by an employer when directly withholding shares for tax withholding purposes will be classified as a financing activity. Awards that are used to settle employee tax liabilities will be allowed to qualify for equity classification for withholdings up to the maximum statutory tax rates in applicable jurisdictions. Regarding forfeitures, a company can make an entity-wide accounting policy election to either continue estimating the number of awards that are expected to vest or account for forfeitures when they occur.modified retrospective approach. The updated guidance is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. The impact of the adoption of ASU 2016-09 wasdid not material to the Company’s financial position, results of operations or cash flows.
In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact of ASU 2016-02 by reviewing its existing lease contracts. The Company expects a gross-up of its Consolidated Balance Sheets as a result of recognizing lease liabilities and right of use assets. The extent of such gross-up is under evaluation. The Company does not expect material changes to the Consolidated Statements of Operations.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this ASC update address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU 2016-01: (1) requires equity investments (except those accounted for under the equity method or those that result in the consolidation of the investee) to be measured at fair value with changes in the fair value recognized in net income; (2) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative
74
assessment to identify impairment; (3) requires the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes; and (4) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the notes to the financial statements. These amendments are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The extent of the impact will depend upon the nature and characteristics of the Company’s portfolio at the adoption date.
In May 2015, the FASB issued ASU 2015-09, Disclosures about Short-Duration Contracts. ASU 2015-09 requires companies that issue short duration contracts to disclose additional information, including: (i) incurred and paid claims development tables; (ii) frequency and severity of claims; and (iii) information about material changes in judgments made in calculating the liability for unpaid claim adjustment expenses, including reasons for the change and the effects on the financial statements. ASU 2015-09 is effective for annual periods beginning after December 15, 2015, and interim periods within annual periods beginning after December 15, 2016. The amendments in ASU 2015-09 should be applied retrospectively by providing comparative disclosures for each period presented, except for those requirements that apply only to the current period. The adoption of ASU 2015-09 is disclosure only and has been reflected in the Loss and Loss Adjustment Expense footnote.
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosures of Uncertainties about an Entity’s Ability as a Going Concern. ASU 2014-15 provides guidance on determining when and how to disclose going concern uncertainties in the financial statements, and requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. ASU 2014-15 is effective for annual periods ending after December 15, 2016 and interim periods thereafter. Management has assessed and concluded that there were no conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements were issued.
In May 2014, the FASB issued as final, ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes virtually all existing revenue recognition guidance under GAAP. The update's core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The update is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017 and allows early adoption. ASU 2014-09 allows for the use of either the retrospective or modified retrospective approach of adoption. The Company does not expect the modified retrospective adoption of ASU 2014-09 to have a material impact on the opening balance of retained earnings. The Company has elected not to measure expected credit losses for accrued interest receivables related to its financial position, resultsfinance receivables and fixed maturity securities. At January 1, 2020, the Company recognized an allowance for expected credit losses related to its available-for-sale (“AFS”) debt securities of operations, or cash flows, or disclosures.$2,510.
Segments
The Company comprises one business segment: property and casualty insurance operations. Management organizes the business around private passenger automobile insurance in Massachusetts sold exclusively through
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independent agents and offers other personal and commercial insurance as complementary products. In accordance with ASC 280, Segment Reporting, the financial information of the segment is presented consistent with the way results are regularly evaluated by the chief operating decision maker in deciding how to allocate resources and in assessing performance.
3. | Investments |
3.Investments
The gross unrealized gains and losses on investments in fixed maturity securities, including redeemable preferred stocks that have characteristics of fixed maturities, and equity securities, including interests in mutual funds, and other invested assets, were as follows for the periods indicated.
| | | | | | | | | | | | | | | |
| | As of December 31, 2022 | |||||||||||||
| | | | | | | | | | | | | | | |
|
| Cost or |
| Allowance for |
| Gross Unrealized |
| Estimated | |||||||
| | Amortized | | Expected Credit | | | | | | Fair | |||||
| | Cost | | Losses | | Gains | | Losses (3) | | Value | |||||
U.S. Treasury securities | | $ | 1,825 | | $ | — | | $ | — | | $ | (156) | | $ | 1,669 |
Obligations of states and political subdivisions | |
| 57,319 | |
| — | |
| 282 | |
| (3,532) | |
| 54,069 |
Residential mortgage-backed securities (1) | |
| 259,878 | |
| — | |
| 385 | |
| (25,761) | |
| 234,502 |
Commercial mortgage-backed securities | |
| 156,303 | |
| — | |
| 107 | |
| (16,479) | |
| 139,931 |
Other asset-backed securities | |
| 74,160 | |
| — | |
| — | |
| (5,429) | |
| 68,731 |
Corporate and other securities | |
| 603,294 | |
| (678) | |
| 740 | |
| (52,103) | |
| 551,253 |
Subtotal, fixed maturity securities | |
| 1,152,779 | |
| (678) | |
| 1,514 | |
| (103,460) | |
| 1,050,155 |
Equity securities (2) | |
| 231,444 | |
| — | |
| 31,857 | |
| (23,146) | |
| 240,155 |
Other invested assets (4) | |
| 112,850 | |
| — | |
| — | |
| — | |
| 112,850 |
Totals | | $ | 1,497,073 | | $ | (678) | | $ | 33,371 | | $ | (126,606) | | $ | 1,403,160 |
| | | | | | | | | | | | | | | |
| | As of December 31, 2021 | |||||||||||||
| | | | | | | | | | | | | | | |
|
| Cost or |
| Allowance for |
| Gross Unrealized |
| Estimated | |||||||
| | Amortized | | Expected Credit | | | | | | Fair | |||||
| | Cost | | Losses | | Gains | | Losses (3) | | Value | |||||
U.S. Treasury securities | | $ | 318 | | $ | — | | $ | 6 | | $ | — | | $ | 324 |
Obligations of states and political subdivisions | |
| 111,578 | |
| — | |
| 4,847 | |
| (123) | |
| 116,302 |
Residential mortgage-backed securities (1) | |
| 237,026 | |
| — | |
| 5,941 | |
| (1,503) | |
| 241,464 |
Commercial mortgage-backed securities | |
| 146,318 | |
| — | |
| 5,007 | |
| (442) | |
| 150,883 |
Other asset-backed securities | |
| 83,376 | |
| — | |
| 475 | |
| (255) | |
| 83,596 |
Corporate and other securities | |
| 609,241 | |
| (691) | |
| 20,647 | |
| (3,487) | |
| 625,710 |
Subtotal, fixed maturity securities | |
| 1,187,857 | |
| (691) | |
| 36,923 | |
| (5,810) | |
| 1,218,279 |
Equity securities (2) | |
| 211,848 | |
| — | |
| 54,861 | |
| (1,764) | |
| 264,945 |
Other invested assets (4) | |
| 87,911 | |
| — | |
| — | |
| — | |
| 87,911 |
Totals | | $ | 1,487,616 | | $ | (691) | | $ | 91,784 | | $ | (7,574) | | $ | 1,571,135 |
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of December 31, 2017 | |||||||||||||
|
|
|
|
|
|
|
| Gross Unrealized Losses (3) |
|
|
| ||||
|
| Cost or |
| Gross |
| Non-OTTI |
| OTTI |
| Estimated | |||||
|
| Amortized |
| Unrealized |
| Unrealized |
| Unrealized |
| Fair | |||||
|
| Cost |
| Gains |
| Losses |
| Losses (4) |
| Value | |||||
U.S. Treasury securities |
| $ | 1,809 |
| $ | — |
| $ | (18) |
| $ | — |
| $ | 1,791 |
Obligations of states and political subdivisions |
|
| 391,806 |
|
| 12,244 |
|
| (966) |
|
| — |
|
| 403,084 |
Residential mortgage-backed securities (1) |
|
| 223,257 |
|
| 2,352 |
|
| (2,843) |
|
| — |
|
| 222,766 |
Commercial mortgage-backed securities |
|
| 39,268 |
|
| 415 |
|
| (314) |
|
| — |
|
| 39,369 |
Other asset-backed securities |
|
| 72,665 |
|
| 173 |
|
| (225) |
|
| — |
|
| 72,613 |
Corporate and other securities |
|
| 427,892 |
|
| 6,962 |
|
| (2,451) |
|
| — |
|
| 432,403 |
Subtotal, fixed maturity securities |
|
| 1,156,697 |
|
| 22,146 |
|
| (6,817) |
|
| — |
|
| 1,172,026 |
Equity securities (2) |
|
| 90,481 |
|
| 21,995 |
|
| (609) |
|
| — |
|
| 111,867 |
Other invested assets (5) |
|
| 23,162 |
|
| — |
|
| — |
|
| — |
|
| 23,162 |
Totals |
| $ | 1,270,340 |
| $ | 44,141 |
| $ | (7,426) |
| $ | — |
| $ | 1,307,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of December 31, 2016 |
| |||||||||||||
|
|
|
|
|
|
|
| Gross Unrealized Losses (3) |
|
|
|
| ||||
|
| Cost or |
| Gross |
| Non-OTTI |
| OTTI |
| Estimated |
| |||||
|
| Amortized |
| Unrealized |
| Unrealized |
| Unrealized |
| Fair |
| |||||
|
| Cost |
| Gains |
| Losses |
| Losses (4) |
| Value |
| |||||
U.S. Treasury securities |
| $ | 302 |
| $ | — |
| $ | — |
| $ | — |
| $ | 302 |
|
Obligations of states and political subdivisions |
|
| 382,811 |
|
| 11,534 |
|
| (3,912) |
|
| — |
|
| 390,433 |
|
Residential mortgage-backed securities (1) |
|
| 252,031 |
|
| 3,256 |
|
| (2,656) |
|
| — |
|
| 252,631 |
|
Commercial mortgage-backed securities |
|
| 35,695 |
|
| 191 |
|
| (432) |
|
| — |
|
| 35,454 |
|
Other asset-backed securities |
|
| 70,411 |
|
| 89 |
|
| (90) |
|
| — |
|
| 70,410 |
|
Corporate and other securities |
|
| 401,413 |
|
| 7,070 |
|
| (3,444) |
|
| — |
|
| 405,039 |
|
Subtotal, fixed maturity securities |
|
| 1,142,663 |
|
| 22,140 |
|
| (10,534) |
|
| — |
|
| 1,154,269 |
|
Equity securities (2) |
|
| 92,326 |
|
| 15,504 |
|
| (2,735) |
|
| — |
|
| 105,095 |
|
Other invested assets (5) |
|
| 21,142 |
|
| — |
|
| — |
|
| — |
|
| 21,142 |
|
Totals |
| $ | 1,256,131 |
| $ | 37,644 |
| $ | (13,269) |
| $ | — |
| $ | 1,280,506 |
|
| (1) |
| Residential |
| (2) |
| Equity securities include common stock, preferred stock, mutual funds and interests in mutual funds held to fund the Company’s executive deferred compensation plan. |
| (3) |
| The Company’s investment portfolio included |
| (4) |
|
|
| Other invested assets are accounted for under the equity method which approximates fair value. |
The amortized cost and the estimated fair value of fixed maturity securities, by maturity, are shown below for the period indicated. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
|
|
|
|
|
|
|
| As of December 31, 2017 | ||||
|
| Amortized |
| Estimated | ||
|
| Cost |
| Fair Value | ||
Due in one year or less |
| $ | 63,751 |
| $ | 63,886 |
Due after one year through five years |
|
| 291,873 |
|
| 297,433 |
Due after five years through ten years |
|
| 242,425 |
|
| 246,193 |
Due after ten years through twenty years |
|
| 218,344 |
|
| 224,328 |
Due after twenty years |
|
| 5,114 |
|
| 5,440 |
Asset-backed securities |
|
| 335,190 |
|
| 334,746 |
Totals |
| $ | 1,156,697 |
| $ | 1,172,026 |
7674
| | | | | | |
| | As of December 31, 2022 | ||||
|
| Amortized |
| Estimated | ||
| | Cost | | Fair Value | ||
Due in one year or less | | $ | 4,899 | | $ | 4,665 |
Due after one year through five years | |
| 289,109 | |
| 269,852 |
Due after five years through ten years | |
| 328,816 | |
| 296,368 |
Due after ten years through twenty years | |
| 38,044 | |
| 34,623 |
Due after twenty years | |
| 1,570 | |
| 1,483 |
Asset-backed securities | |
| 490,341 | |
| 443,164 |
Totals | | $ | 1,152,779 | | $ | 1,050,155 |
The gross realized gains and losses on sales of investments were as follows for the periods indicated.
|
|
|
|
|
|
|
|
|
| |||||||||
|
| Years Ended December 31, | ||||||||||||||||
|
| 2017 |
| 2016 |
| 2015 | ||||||||||||
| | | | | | | | | | |||||||||
|
| Years Ended December 31, | ||||||||||||||||
|
| 2022 |
| 2021 |
| 2020 | ||||||||||||
Gross realized gains |
|
|
|
|
|
|
|
|
| | | | | | | | | |
Fixed maturity securities |
| $ | 1,468 |
| $ | 803 |
| $ | 496 | | $ | 1,511 | | $ | 3,666 | | $ | 1,645 |
Equity securities |
|
| 5,244 |
|
| 6,946 |
|
| 2,727 | |
| 12,367 | |
| 12,275 | |
| 6,864 |
Gross realized losses |
|
|
|
|
|
|
|
|
| | | | | | | | | |
Fixed maturity securities |
|
| (504) |
|
| (1,242) |
|
| (3,315) | |
| (2,987) | |
| (1,036) | |
| (2,166) |
Equity securities |
|
| (172) |
|
| (948) |
|
| (377) | |
| (1,701) | |
| (20) | |
| (5,386) |
Net realized gains (losses) on investments |
| $ | 6,036 |
| $ | 5,559 |
| $ | (469) | |||||||||
Net realized gains on investments | | $ | 9,190 | | $ | 14,885 | | $ | 957 | |||||||||
In the normal course of business, the Company enters into transactions involving various types of financial instruments, including investments in fixed maturities and equity securities. Investment transactions have credit exposure to the extent that a counter party may default on an obligation to the Company. Credit risk is a consequence of carrying, trading and investing in securities. To manage credit risk, the Company focuses on higher quality fixed income securities, reviews the credit strength of all companies in which it invests, limits its exposure in any one investment and monitors the portfolio quality, taking into account credit ratings assigned by recognized statistical rating organizations.
The following tables as of December 31, 20172022 and 20162021 present the gross unrealized losses included in the Company’s investment portfolio and the fair value of those securities aggregated by investment category. The tables also present the length of time that they have been in a continuous unrealized loss position.
| | | | | | | | | | | | | | | | | | |
| | As of December 31, 2022 | ||||||||||||||||
| | Less than 12 Months | | 12 Months or More | | Total | ||||||||||||
|
| Estimated |
| Unrealized |
| Estimated |
| Unrealized |
| Estimated |
| Unrealized | ||||||
| | Fair Value | | Losses | | Fair Value | | Losses | | Fair Value | | Losses | ||||||
U.S. Treasury securities | | $ | 1,669 | | $ | 156 | | $ | — | | $ | — | | $ | 1,669 | | $ | 156 |
Obligations of states and political subdivisions | |
| 34,178 | |
| 2,504 | |
| 3,072 | |
| 1,028 | |
| 37,250 | |
| 3,532 |
Residential mortgage-backed securities | |
| 140,855 | |
| 12,254 | |
| 70,956 | |
| 13,507 | |
| 211,811 | |
| 25,761 |
Commercial mortgage-backed securities | |
| 110,073 | |
| 11,632 | |
| 24,653 | |
| 4,847 | |
| 134,726 | |
| 16,479 |
Other asset-backed securities | |
| 41,113 | | | 2,358 | | | 27,618 | | | 3,071 | | | 68,731 | | | 5,429 |
Corporate and other securities | |
| 386,401 | |
| 28,048 | |
| 131,046 | |
| 24,055 | |
| 517,447 | |
| 52,103 |
Subtotal, fixed maturity securities | |
| 714,289 | |
| 56,952 | |
| 257,345 | |
| 46,508 | |
| 971,634 | |
| 103,460 |
Equity securities | |
| 116,881 | |
| 21,198 | |
| 6,209 | |
| 1,948 | |
| 123,090 | |
| 23,146 |
Total temporarily impaired securities | | $ | 831,170 | | $ | 78,150 | | $ | 263,554 | | $ | 48,456 | | $ | 1,094,724 | | $ | 126,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of December 31, 2017 | ||||||||||||||||
|
| Less than 12 Months |
| 12 Months or More |
| Total | ||||||||||||
|
| Estimated |
| Unrealized |
| Estimated |
| Unrealized |
| Estimated |
| Unrealized | ||||||
|
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| Fair Value |
| Losses | ||||||
U.S. Treasury securities |
| $ | 1,791 |
| $ | 18 |
| $ | — |
| $ | — |
| $ | 1,791 |
| $ | 18 |
Obligations of states and political subdivisions |
|
| 19,603 |
|
| 152 |
|
| 30,018 |
|
| 814 |
|
| 49,621 |
|
| 966 |
Residential mortgage-backed securities |
|
| 126,713 |
|
| 1,724 |
|
| 39,638 |
|
| 1,119 |
|
| 166,351 |
|
| 2,843 |
Commercial mortgage-backed securities |
|
| 5,457 |
|
| 30 |
|
| 8,027 |
|
| 284 |
|
| 13,484 |
|
| 314 |
Other asset-backed securities |
|
| 25,769 |
|
| 167 |
|
| 18,270 |
|
| 58 |
|
| 44,039 |
|
| 225 |
Corporate and other securities |
|
| 94,863 |
|
| 1,189 |
|
| 36,440 |
|
| 1,262 |
|
| 131,303 |
|
| 2,451 |
Subtotal, fixed maturity securities |
|
| 274,196 |
|
| 3,280 |
|
| 132,393 |
|
| 3,537 |
|
| 406,589 |
|
| 6,817 |
Equity securities |
|
| 4,730 |
|
| 361 |
|
| 2,420 |
|
| 248 |
|
| 7,150 |
|
| 609 |
Total temporarily impaired securities |
| $ | 278,926 |
| $ | 3,641 |
| $ | 134,813 |
| $ | 3,785 |
| $ | 413,739 |
| $ | 7,426 |
75
| | | | | | | | | | | | | | | | | | |
| | As of December 31, 2021 | ||||||||||||||||
| | Less than 12 Months | | 12 Months or More | | Total | ||||||||||||
|
| Estimated |
| Unrealized |
| Estimated |
| Unrealized |
| Estimated |
| Unrealized | ||||||
| | Fair Value | | Losses | | Fair Value | | Losses | | Fair Value | | Losses | ||||||
U.S. Treasury securities | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
Obligations of states and political subdivisions | |
| 2,985 | |
| 85 | |
| 1,012 | |
| 38 | |
| 3,997 | |
| 123 |
Residential mortgage-backed securities | |
| 97,116 | |
| 1,502 | |
| 11 | |
| 1 | |
| 97,127 | |
| 1,503 |
Commercial mortgage-backed securities | |
| 29,660 | |
| 442 | |
| — | |
| — | |
| 29,660 | |
| 442 |
Other asset-backed securities | |
| 39,266 | | | 255 | | | — | | | — | |
| 39,266 | |
| 255 |
Corporate and other securities | |
| 181,470 | |
| 3,140 | |
| 11,436 | |
| 347 | |
| 192,906 | |
| 3,487 |
Subtotal, fixed maturity securities | |
| 350,497 | |
| 5,424 | |
| 12,459 | |
| 386 | |
| 362,956 | |
| 5,810 |
Equity securities | |
| 19,457 | |
| 1,559 | |
| 1,029 | |
| 205 | |
| 20,486 | |
| 1,764 |
Total temporarily impaired securities | | $ | 369,954 | | $ | 6,983 | | $ | 13,488 | | $ | 591 | | $ | 383,442 | | $ | 7,574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of December 31, 2016 | ||||||||||||||||
|
| Less than 12 Months |
| 12 Months or More |
| Total | ||||||||||||
|
| Estimated |
| Unrealized |
| Estimated |
| Unrealized |
| Estimated |
| Unrealized | ||||||
|
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| Fair Value |
| Losses | ||||||
U.S. Treasury securities |
| $ | 301 |
| $ | — |
| $ | — |
| $ | — |
| $ | 301 |
| $ | — |
Obligations of states and political subdivisions |
|
| 79,960 |
|
| 3,912 |
|
| — |
|
| — |
|
| 79,960 |
|
| 3,912 |
Residential mortgage-backed securities |
|
| 182,265 |
|
| 2,476 |
|
| 4,595 |
|
| 180 |
|
| 186,860 |
|
| 2,656 |
Commercial mortgage-backed securities |
|
| 15,521 |
|
| 432 |
|
| — |
|
| — |
|
| 15,521 |
|
| 432 |
Other asset-backed securities |
|
| 31,869 |
|
| 90 |
|
| — |
|
| — |
|
| 31,869 |
|
| 90 |
Corporate and other securities |
|
| 118,625 |
|
| 2,044 |
|
| 17,531 |
|
| 1,400 |
|
| 136,156 |
|
| 3,444 |
Subtotal, fixed maturity securities |
|
| 428,541 |
|
| 8,954 |
|
| 22,126 |
|
| 1,580 |
|
| 450,667 |
|
| 10,534 |
Equity securities |
|
| 6,364 |
|
| 315 |
|
| 14,841 |
|
| 2,420 |
|
| 21,205 |
|
| 2,735 |
Total temporarily impaired securities |
| $ | 434,905 |
| $ | 9,269 |
| $ | 36,967 |
| $ | 4,000 |
| $ | 471,872 |
| $ | 13,269 |
Other‑Than‑Temporary Impairments
ASC 320, Investments—Debt and Equity Securities requires entities to separate an OTTIAt December 31, 2022, U.S. Government residential mortgage backed securities with a fair value of $40,195 are pledged as collateral for a debt security into two components when there are credit related losses associatedborrowing with the impaired debt securityFederal Home Loan Bank of Boston (“FHLB-Boston”) as described in Note 10 – Debt. These securities are included in fixed maturity securities on the Company’s Consolidated Balance Sheets.
Impairments
For fixed maturities that the Company does not intend to sell or for which the Company asserts that it does not have the intent to sell the security, and it is more likely than not that it willthe Company would not be required to sell before an anticipated recovery in value, the security before recoveryCompany separates the credit loss component of its cost basis. Under ASC 320,the impairment from the amount of the OTTI related to all other factors. The expected credit loss component is recognized as an allowance for expected credit losses. The allowance is adjusted for any additional credit losses and subsequent recoveries, which are booked in income as either credit loss expense or credit loss benefit, respectively. Upon recognizing a credit loss, the cost basis is recognizednot adjusted. The impairment related to all other factors (non-credit factors) is reported in earnings,other comprehensive income.
For fixed maturities where the Company records a credit loss, a determination is made as to the cause of the impairment and whether the Company expects a recovery in the value. For fixed maturities where the Company expects a recovery in value, the constant effective yield method is utilized, and the amount ofinvestment is amortized to par.
For fixed maturity investments the OTTI relatedCompany intends to other factors is recorded as a component of other
77
comprehensive income (loss). In instances where no credit loss exists butsell or for which it is more likely than not that the Company will havebe required to sell the debt security prior to thebefore an anticipated recovery in value, the decline in market value below amortized cost is recognized as an OTTI in earnings. In periods after the recognition of an OTTI on debt securities, the Company accounts for such securities as if they had been purchased on the measurement datefull amount of the OTTI at an amortizedimpairment is included in credit loss expense. The new cost basis equal toof the investment is the previous amortized cost basis less the OTTIimpairment recognized in earnings. For debt securitiescredit loss expense. The new cost basis is not adjusted for which OTTI was recognizedany subsequent recoveries in earnings, the difference between the newfair value.
The Company uses a systematic methodology to evaluate declines in fair values below cost or amortized cost basis and the cash flows expected to be collected will be accreted or amortized into net investment income.
The Company holds no subprime mortgage debt securities. Allof our investments. Some of the Company’s holdingsfactors considered in mortgage‑backed securities are either U.S. Government or Agency guaranteed or are rated investment grade by either Moody’s or Standard & Poor’s.
The unrealized losses in the Company’sassessing impairment of fixed income and equity portfolio as of December 31, 2017 were reviewed for potential other-than-temporary asset impairments. The Company held two debt securities at December 31, 2017 with a material (20% or greater) unrealized loss for four or more consecutive quarters that additionally had certain qualitative factors that ledmaturities due to an impairment charge. As a result of our analysis, during the year ended December 31, 2017, the Company recognized $256 of OTTI losses which consisted entirely of credit losses relatedinclude the extent to fixed maturity securities. Duringwhich the year ended December 31, 2016, the Company recognized $798 of OTTI losses which consisted entirely of credit losses related to fixed maturity securities.
Specific qualitative analysis was also performed for any additional securities appearing on the Company’s “Watch List,” if any. Qualitative analysis considered such factors asfair value is less than amortized cost, the financial condition of and the near termand long-term prospects of the issuer, whether the debtor is current on its contractually obligated interest and principal payments, changes to the rating of the security by a rating agency, and the historical volatility of the fair value of the security.security and whether it is more like than not that the Company will be required to sell the investment prior to an anticipated recovery in value.
As of December 31, 2022, the Company concluded that $678 of unrealized losses were due to credit factors and were recorded as an allowance for expected credit losses, compared to $691 as of December 31, 2021. The qualitative analysis performed by the Company concluded that outside of the securities that were recognized through OTTI,as credit impaired, the unrealized losses recorded on the investmentfixed maturity portfolio at December 31, 20172022 and 2021 resulted from fluctuations in market interest rates and other temporary market conditions as opposed to fundamental changes in the credit quality of the issuers of such securities. Therefore, decreases in fair values of the Company’s securities are viewed as being temporary.
The following table summarizes the credit loss recognized in earnings related to fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| Years Ended December 31, | |||||||
|
|
| 2017 |
| 2016 |
|
| 2015 | ||
Credit losses on fixed maturity securities, beginning of period |
| $ | 1,094 |
| $ | 796 |
|
| - | |
| Add: credit losses on OTTI not previously recognized |
|
| 256 |
|
| 798 |
|
| 796 |
| Less: credit losses on securities sold |
|
| (458) |
|
| (500) |
|
| - |
| Less: credit losses on securities impaired due to intent to sell |
|
| — |
|
| — |
|
| — |
| Add: credit losses on previously impaired securities |
|
| — |
|
| — |
|
| — |
| Less: increases in cash flows expected on previously impaired securities |
|
| — |
|
| — |
|
| — |
Credit losses on fixed maturity securities, end of period |
| $ | 892 |
| $ | 1,094 |
|
| 796 | |
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2017 and December 31, 2016, there were no amounts included in accumulated other comprehensive income related to securities which were considered by the Company to be other‑than‑temporarily impaired.
Based upon the qualitative analysis performed, the Company’s decision to hold these securities, the Company’s current level of liquidity and itsour history of positive operating cash flows, management believes it is more likely than not that it will not be required to sell any of its securities before the anticipated recovery in the fair value to its amortized cost basis.
7876
The following tables represent a reconciliation of the beginning and ending balances of the allowance for expected credit losses on fixed maturities classified as available for sale.
| | | | | | |
| | | Year Ended December 31, | |||
| | | 2022 | | | 2021 |
Beginning of period | | $ | 691 | | $ | 1,054 |
Credit losses on securities with no previously recorded credit losses | | | 193 | | | 9 |
Net increases (decreases) in allowance on previously impaired securities | |
| 98 | | | (137) |
Reduction due to sales | | | (304) | | | (235) |
Writeoffs charged against allowance | |
| — | | | — |
Recoveries of amounts previously written off | |
| — | | | — |
Ending balance of period | | $ | 678 | | $ | 691 |
The Company holds no subprime mortgage debt securities. All of the Company’s holdings in mortgage-backed securities are either U.S. Government or Agency guaranteed or are rated investment grade by either Moody’s or Standard & Poor’s.
Net Investment Income
The components of net investment income were as follows for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
| Years Ended December 31, | |||||||
|
| 2017 |
| 2016 |
| 2015 | |||
Interest on fixed maturity securities |
| $ | 37,246 |
| $ | 36,961 |
| $ | 38,794 |
Dividends on equity securities |
|
| 3,093 |
|
| 3,401 |
|
| 3,362 |
Equity in earnings of other invested assets |
|
| 1,016 |
|
| 949 |
|
| 918 |
Interest on other assets |
|
| 89 |
|
| 64 |
|
| 74 |
Interest on cash and cash equivalents |
|
| — |
|
| 43 |
|
| 11 |
Total Investment Income |
|
| 41,444 |
|
| 41,418 |
|
| 43,159 |
Investment expenses |
|
| 2,686 |
|
| 3,005 |
|
| 2,625 |
Net investment income |
| $ | 38,758 |
| $ | 38,413 |
| $ | 40,534 |
| | | | | | | | | |
| | Years Ended December 31, | |||||||
|
| 2022 |
| 2021 |
| 2020 | |||
Interest on fixed maturity securities | | $ | 40,886 | | $ | 36,160 | | $ | 37,727 |
Dividends on equity securities | |
| 6,746 | |
| 6,421 | |
| 5,044 |
Equity in earnings of other invested assets | |
| 2,304 | |
| 4,895 | |
| 1,378 |
Interest on other assets | |
| 61 | |
| 22 | |
| 27 |
Total Investment Income | |
| 49,997 | |
| 47,498 | |
| 44,176 |
Investment expenses | |
| 3,272 | |
| 3,363 | |
| 3,131 |
Net investment income | | $ | 46,725 | | $ | 44,135 | | $ | 41,045 |
4.Equipment
4.Allowance for Expected Credit Losses
The Company’s financial instruments include premiums and Leasehold Improvementsaccounts receivable, and reinsurance recoverables.
Premiums and accounts receivable are reported net of an allowance for expected credit losses. The allowance is based upon the Company’s ongoing review of amounts outstanding, historical loss data, including delinquencies and write-offs, current and forecasted economic conditions and other relevant factors. Credit risk is partially mitigated by the Company’s ability to cancel the policy if the policyholder does not pay the premium and the Company writes off premiums receivable balances that are more than 90 days overdue.
The following tables present the balances of premiums receivable, net of the allowance for expected credit losses, for the years ended December 31, 2022 and 2021, and changes in the allowance for expected credit losses for the years ended December 31, 2022 and 2021.
| | | | | | | | | | | | |
| | | At and For the | | | At and For the | ||||||
| | | Year Ended December 31, 2022 | | | Year ended December 31, 2021 | ||||||
|
| | Accounts Receivable Net of Allowance for Expected Credit Losses | | | Allowance for Expected Credit Losses | | | Accounts Receivable Net of Allowance for Expected Credit Losses | | | Allowance for Expected Credit Losses |
Balance, beginning of period | | $ | 170,953 | | $ | 1,808 | | $ | 179,147 | | $ | 1,754 |
Current period change for expected credit losses | |
| | |
| 1,339 | |
| | |
| 2,339 |
Writeoffs of uncollectable accounts receivable | |
| | |
| (1,701) | |
| | |
| (2,285) |
Balance, end of period | | $ | 192,542 | | $ | 1,446 | | $ | 170,953 | | $ | 1,808 |
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Reinsurance recoverables include amounts due from reinsurers for both paid and unpaid losses. The Company cedes insurance to CAR and to other reinsurers. The Company has a property catastrophe excess of loss agreement and a casualty excess of loss agreement that qualify as reinsurance treaties and are designed to protect against large or unusual loss and LAE activity. Reinsurance contracts do not relieve the Company from its obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company evaluates the financial condition of its reinsurers and monitors economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. The Company reports its reinsurance recoverables net of an allowance for estimated uncollectable reinsurance. A probability-of-default methodology which reflects current and forecasted economic conditions is used to estimate the amount of uncollectible reinsurance due to credit-related factors and the estimate is reported in an allowance for estimated uncollectible reinsurance. Amounts deemed to be uncollectible, including amounts due from known insolvent reinsurers, are written off against the allowance. Changes in the allowance, as well as any subsequent collections of amounts previously written off, are reported as part of claims and claim adjustment expenses.
The majority of the Company’s reinsurance recoverable on paid and unpaid losses is a result of our participation as a servicing carrier in the CAR Commercial Automobile Program, which represents 94% of the total reinsurance recoverable on paid and unpaid losses at December 31, 2022 and 2021, respectively. The remaining 6% of amounts due from reinsurers are related to our other excess of loss and quota share contracts. For amounts due under these contracts, the Company utilizes updated A.M. Best credit ratings on a quarterly basis to determine the allowance for expected credit losses. As of December 31, 2022 and 2021, all reinsurers under these programs are rated “A” or better by A.M. Best. Certain of the Company's reinsurance recoverables are collateralized by letters of credit, funds held or trust agreements. The Company’s analysis concludes that there are no expected credit losses at December 31, 2022 or 2021.
5. | Equipment and Leasehold Improvements |
The carrying value of equipment and leasehold improvements by classification was as follows for the periods indicated.
|
|
|
|
|
|
|
|
|
| As of December 31, |
| ||||
|
| 2017 |
| 2016 |
| ||
Software |
| $ | 34,252 |
| $ | 29,167 |
|
Computer equipment |
|
| 8,820 |
|
| 8,218 |
|
Leasehold improvements |
|
| 2,524 |
|
| 2,524 |
|
Other equipment |
|
| 2,770 |
|
| 2,499 |
|
Furniture and fixtures |
|
| 1,338 |
|
| 1,338 |
|
Total cost |
|
| 49,704 |
|
| 43,746 |
|
Less accumulated depreciation and amortization |
|
| 39,837 |
|
| 34,800 |
|
Equipment and leasehold improvements, net |
| $ | 9,867 |
| $ | 8,946 |
|
Equipment and leasehold improvements are included in other assets in the consolidated balance sheets.
| | | | | | |
| | As of December 31, | ||||
| | 2022 | | 2021 | ||
Software |
| $ | 58,079 |
| $ | 57,463 |
Computer equipment | |
| 15,649 | |
| 15,425 |
Leasehold improvements | |
| 8,264 | |
| 8,264 |
Other equipment | |
| 3,132 | |
| 3,132 |
Furniture and fixtures | |
| 4,346 | |
| 4,346 |
Total cost | |
| 89,470 | |
| 88,630 |
Less accumulated depreciation and amortization | |
| 71,342 | |
| 65,188 |
Equipment and leasehold improvements, net | | $ | 18,128 | | $ | 23,442 |
Depreciation and amortization expense for the years ended December 31, 2017, 2016,2022, 2021, and 20152020 was $5,037, $4,382,$7,876, $6,896 and $3,907, respectively.$7,526, respectively and is included in underwriting, operating and related expenses.
5.Employee Benefit Plan
6. | Employee Benefit Plan |
The Company sponsors the Safety Insurance Company 401(k) qualified defined contribution retirement plan (the “Retirement Plan”). The Retirement Plan is available to all eligible employees of the Company. An employee must be 21 years of age to be eligible to participate in the Retirement Plan and is allowed to contribute on a pre‑pre-tax basis up to the maximum allowed under federal law. The Retirement Plan is administered by the Company and is subject to the provisions of the Employee Retirement Income Security Act of 1974. At the close of each Retirement Plan year, the Company makes a matching contribution equal to 100% of the amount each participant contributed during the plan year from their total pay, up to a maximum amount of 8% of the participant’s base salary, to those participants who have contributed to the Retirement Plan and were employed on the last day of the Retirement Plan year. Compensation expense related to the Retirement Plan was $3,164, $3,018,$3,382, $3,433, and $3,019$3,388 for the years ended December 31, 2017, 2016, 2022, 2021,
78
and 2015,2020, respectively.
7. | Share-Based Compensation |
6.Share‑Based Compensation
Management Omnibus2018 Long Term Incentive Plan
Long-term incentive compensation is provided under
On March 24, 2022, the Company’s Board of Directors adopted the Amended and Restated Safety Insurance Group, Inc. 2018 Long-Term Incentive Plan (“the Amended 2018 Plan”), which was subsequently approved by our shareholders at the 2022 Annual Meeting of Shareholders. The Amended 2018 Plan increases the share pool limit by adding 350,000 common shares to the previously adopted Safety Insurance Group, Inc. 2018 Long-Term Incentive Plan. The Amended 2018 Plan enables the grant of stock awards, performance shares, cash-based performance units, other stock-based awards, stock options, stock appreciation rights, and stock unit awards, each of which may be granted separately or in tandem with other awards. Eligibility to participate includes officers, directors, employees and other individuals who provide bona fide services to the Company. The Amended 2018 Plan supersedes the Company’s 2002 Management Omnibus Incentive Plan (“the 2002 Incentive Plan”) which provides for a variety of share-based compensation awards, including nonqualified stock options, incentive stock options, stock appreciation rights and restricted stock (“RS”) awards..
79
The maximum numberAmended 2018 Plan establishes a pool of 700,000 shares of common stock with respect to which awards may be granted is 2,500,000. The Incentive Plan was amended in March of 2013 to remove "share recycling" plan provisions. Hence, shares of stock covered by an award under the Incentive Plan that are forfeited are no longer available for issuance in connection with 2013to our employees and future grants of awards. At December 31, 2017, there were 209,087 shares available for future grant.other eligible participants. The Board of Directors and the Compensation Committee intend to issue more awards under the IncentiveAmended 2018 Plan in the future.
ForThe maximum number of shares of common stock between the years ended December 31, 2017, 2016,Amended 2018 Plan and 2015, the Company recorded compensation expense related2002 Incentive Plan with respect to which awards may be granted is 3,200,000. No further grants will be allowed under the Incentive Plan of $3,358, $2,797, and $2,423, net of income tax benefit of $1,808, $1,506, and $1,304, respectively.
Stock Options
The following table summarizes stock option activity under the2002 Incentive Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Years Ended December 31, | |||||||||||||
|
| 2017 |
| 2016 |
| 2015 | |||||||||
|
| Shares |
| Weighted |
| Shares |
| Weighted |
| Shares |
| Weighted | |||
|
| Under |
| Average |
| Under |
| Average |
| Under |
| Average | |||
|
| Option |
| Exercise Price |
| Option |
| Exercise Price |
| Option |
| Exercise Price | |||
Outstanding at beginning of year | $ | — |
| $ | — | $ | 6,200 |
| $ | 42.85 | $ | 12,700 |
| $ | 42.85 |
Exercised |
| — |
|
| — |
| (6,000) |
|
| 42.85 |
| (6,500) |
|
| 42.85 |
Forfeited |
| — |
|
| — |
| (200) |
|
| 42.85 |
| — |
|
| — |
Outstanding at end of period |
| — |
|
| — |
| — |
|
| — |
| 6,200 |
|
| 42.85 |
Exercisable at end of period | $ | — |
| $ | — | $ | — |
| $ | — | $ | 6,200 |
| $ | 42.85 |
As of December 31, 2016, all stock option awards have expired and all compensation expense related to stock option awards has been recognized. At December 31, 2015, the aggregate intrinsic value of outstanding2022, there were 444,216 shares under option was $84 with a weighted average remaining contractual term of 0.2 years, respectively. Aggregate intrinsic value represents the total pretax intrinsic value, which is the difference between the fair value based upon the Company’s closing year‑ end stock price at December 31, 2015 and the exercise price which would have been received by the option holders had all option holders exercised their options as of that date. The exercise price on stock options outstanding under the Incentive Plan was $42.85 at December 31, 2015. The total intrinsic value of options exercised during the years ended December 31, 2016, and 2015, $85, and $138, respectively.available for future grant.
Restricted Stock
Service-based restricted stock awarded in the form of unvested shares is recorded at the market value of the Company’s common stock on the grant date and amortized ratably as compensation expense over the requisite service period. Service-based restricted stock awards generally vest over a three-year period and vest 30% on the first and second anniversaries of the grant date and 40% on the third anniversary of the grant date, except for non-executive employees’ restricted stock awards granted prior to 2018 which vest ratably over a five-year service period and independent directors’ stock awards which vest immediately. Our independent directors are subject to stock ownership guidelines, which require them to have a value equal to four times their annual cash retainer.
In addition to service-based awards, the Company grants performance-based restricted shares to certain employees. These performance shares cliff vest after a three-year performance period provided certain performance measures are attained. A portion of these awards, which contain a market condition, vest according to the level of total shareholder return achieved by the Company compared to its property-casualty insurance peers over a three-year period. The remainders,remainder, which contain a performance condition, vest according to the level of Company’s combined ratio results compared to a target based on its property-casualty insurance peers.
Actual payouts can range from 0% to 200% of target shares awarded depending upon the level of achievement of the respective market and performance conditions during a three fiscal-yearcalendar-year performance period. Compensation
80
expense for share awards with a performance condition is based on the probable number of awards expected to vest using the performance level most likely to be achieved at the end of the performance period.
Performance-based awards with market conditions are accounted for and measured differently from awards that have a performance or service condition. The effect of a market condition is reflected in the award’s fair value on the grant date. That fair value is recognized as compensation cost over the requisite service period regardless of whether the market-based performance objective has been satisfied.
All of the Company’s restricted stock awards are issued as incentive compensation and are equity classified.
79
The following table summarizes restricted stock activity under the IncentiveAmended 2018 Plan assuming a target payout for the performance-based shares.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Years Ended December 31, | |||||||||||||
|
| 2017 |
| 2016 |
| 2015 | |||||||||
|
| Shares |
| Weighted |
| Shares |
| Weighted |
| Shares |
| Weighted | |||
|
| Under |
| Average |
| Under |
| Average |
| Under |
| Average | |||
|
| Restriction |
| Fair Value |
| Restriction |
| Fair Value |
| Restriction |
| Fair Value | |||
Outstanding at beginning of year |
| 95,493 |
| $ | 55.86 |
| 112,024 |
| $ | 54.44 |
| 176,116 |
| $ | 46.38 |
Granted |
| 40,226 |
|
| 73.42 |
| 46,556 |
|
| 56.09 |
| 46,943 |
|
| 61.57 |
Vested and unrestricted |
| (42,453) |
|
| 56.56 |
| (56,279) |
|
| 53.43 |
| (108,130) |
|
| 44.51 |
Forfeited |
| (180) |
|
| 63.87 |
| (6,808) |
|
| 50.02 |
| (2,905) |
|
| 49.94 |
Outstanding at end of period |
| 93,086 |
| $ | 63.13 |
| 95,493 |
| $ | 55.86 |
| 112,024 |
| $ | 54.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Years Ended December 31, | |||||||||||||
|
| 2017 |
| 2016 |
| 2015 | |||||||||
|
| Performance-based |
| Weighted |
| Performance-based |
| Weighted |
| Performance-based |
| Weighted | |||
|
| Shares Under |
| Average |
| Shares Under |
| Average |
| Shares Under |
| Average | |||
|
| Restriction |
| Fair Value |
| Restriction |
| Fair Value |
| Restriction |
| Fair Value | |||
Outstanding at beginning of year |
| 94,610 |
| $ | 57.60 |
| 99,101 |
| $ | 55.55 |
| 64,724 |
| $ | 50.40 |
Granted |
| 29,829 |
|
| 74.96 |
| 44,626 |
|
| 61.07 |
| 37,722 |
|
| 63.62 |
Vested and unrestricted |
| (18,259) |
|
| 53.99 |
| (15,289) |
|
| 47.42 |
| — |
|
| — |
Forfeited |
| (520) |
|
| 53.99 |
| (33,828) |
|
| 52.07 |
| (3,345) |
|
| 46.91 |
Outstanding at end of period |
| 105,660 |
| $ | 62.75 |
| 94,610 |
| $ | 57.60 |
| 99,101 |
| $ | 55.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | |
| | Years Ended December 31, | |||||||||||||
| | 2022 | | 2021 | | 2020 | |||||||||
|
| Shares |
| Weighted | | Shares |
| Weighted |
| Shares | | Weighted | |||
| | Under | | Average | | Under | | Average |
| Under | | Average | |||
| | Restriction | | Fair Value | | Restriction | | Fair Value |
| Restriction | | Fair Value | |||
Outstanding at beginning of year |
| 65,171 | | $ | 84.30 | | 66,550 | | $ | 85.16 | | 78,202 | | $ | 79.09 |
Granted |
| 38,864 | | | 85.22 | | 39,840 | | | 79.27 | | 34,799 | | | 90.10 |
Vested and unrestricted |
| (38,328) | | | 86.02 | | (40,763) | | | 80.82 | | (43,757) | | | 78.10 |
Forfeited | | (2,294) | | | 83.10 | | (456) | | | 81.17 | | (2,694) | | | 87.70 |
Outstanding at end of period |
| 63,413 | | $ | 83.87 | | 65,171 | | $ | 84.30 | | 66,550 | | $ | 85.16 |
| | | | | | | | | | | | | | | |
| | Years Ended December 31, | |||||||||||||
| | 2022 | | 2021 | | 2020 | |||||||||
|
| Performance-based |
| Weighted |
| Performance-based |
| Weighted |
| Performance-based | | Weighted | |||
| | Shares Under | | Average | | Shares Under | | Average | | Shares Under | | Average | |||
| | Restriction | | Fair Value | | Restriction | | Fair Value | | Restriction | | Fair Value | |||
Outstanding at beginning of year |
| 72,418 | | $ | 86.53 |
| 71,964 | | $ | 84.94 | | 84,105 | | $ | 79.34 |
Granted (1) |
| 31,828 | | | 86.35 |
| 49,460 | | | 77.56 | | 36,649 | | | 84.68 |
Vested and unrestricted |
| (26,504) | | | 92.52 |
| (48,666) | | | 75.05 | | (42,123) | | | 73.55 |
Forfeited | | (2,673) | | | 83.01 | | (340) | | | 87.43 | | (6,667) | | | 84.86 |
Outstanding at end of period |
| 75,069 | | $ | 84.46 |
| 72,418 | | $ | 86.53 | | 71,964 | | $ | 84.94 |
(1) Includes a true-up of previously awarded performance-based restricted share awards. The updated shares were calculated based on the attainment of pre-established performance objectives.
As of December 31, 2017,2022, there was $6,420$5,370 of unrecognized compensation expense related to non‑vestednon-vested restricted stock awards that is expected to be recognized over a weighted average period of 1.71.4 years. The total fair value of the shares that were vested and unrestricted during the years ended December 31, 2017, 2016,2022, 2021, and 20152020 was $3,387, $3,732$5,749, $6,947 and $2,897,$6,516, respectively.
7.Commitments and Contingencies
Lease Commitments
The Company has various non‑cancelable long‑term operating leases. The approximate minimum annual rental payments due under these lease agreements as of December 31, 2017 are presented in the following table.
|
|
|
2018 | $ | 3,633 |
2019 |
| 3,537 |
2020 |
| 3,474 |
2021 |
| 3,437 |
2022 |
| 3,424 |
2023 and after |
| 19,977 |
Total minimum lease payments | $ | 37,482 |
81
Certain lease agreements contain renewal options and, in addition to the minimum annual rentals, generally provide for payment of a share of the real estate taxes and operating expenses in excess of a base amount. Rental expense was $4,557, $4,242 and $4,293 for For the years ended December 31, 2017, 2016,2022, 2021, and 2015,2020, the Company recorded compensation expense related to awards under the Incentive Plan of $4,724, $4,971, and $5,893, net of income tax benefit of $1,256, $1,321, and $1,566, respectively. All leases expire prior to 2029. The Company expects that in the normal course of business, leases that expire will be renewed.
8. | Commitments and Contingencies |
Commitments
A ninth amendment to a lease agreement for the lease of office space was executed on November 7, 2017. Under the provisions of this amendment, the lease term was extended an additional eleven years commencing on January 1, 2018, with an option to renew for two additional five‑year terms.
As part of the Company’s investment activity, we have committed $60,000$160,000 to investments in limited partnerships in a real estate investment trust.partnerships. The Company has contributed $30,240$114,418 to these commitments as of December 31, 2017.2022. As of December 31, 2017,2022, the remaining committed capital due tothat could be called is $29,760.$52,000, which includes potential recallable capital distributions.
Contingencies
Various claims, generally incidental to the conduct of normal business, are pending or alleged against the Company from time to time. In the opinion of management, based in part on the advice of legal counsel, the ultimate resolution of such claims will not have a material adverse effect on the Company���sCompany’s consolidated financial statements. However, if estimates of the ultimate resolutions of those proceedings are revised, liabilities related to those proceedings could be adjusted in the near term.
The Company had been named in a lawsuit alleging that the Company improperly denied coverage to commercial insureds for loss of business income resulting from the COVID-19 pandemic. Our position is that no coverage existed for this peril. As a result of the lawsuit, the Company accrued a reserve of $6,500 for legal defense costs included in Loss and Losses Adjustment Expenses during the year ended December 31, 2021. During the year ended December 31, 2022, the claim against the Company was closed and the accrual of $6,500 was reversed.
80
On October 19, 2021, the Supreme Judicial Court of Massachusetts (the “Court”) unanimously ruled that property and casualty insurers must compensate third-party claimants under property damage coverage, part 4 of the standard Massachusetts automobile insurance policy, 2008 edition (standard policy), for the inherent diminished value (“IDV”) that occurs when their vehicles are damaged in a crash. This ruling overturned a previous decision by the Massachusetts Superior Court, which found that a Massachusetts auto insurance policy did not provide property damage coverage for inherent diminished value damages for third-party claimants. The Court placed the burden of proof on the individual claimant by explicitly specifying that the claimant must establish that the vehicle has suffered IDV damages and also the amount of IDV damages at issue. The Court further ruled that an insurer’s previous denial of coverage for such damages could not serve as the basis for a claim of unfair business practices. Based on the Court’s rulings, at this time the Company does not expect any claims for IDV damages to be material, and therefore has not accrued for a specific loss contingency.
Massachusetts law requires that insurers licensed to do business in Massachusetts participate in the Massachusetts Insurers Insolvency Fund (“Insolvency Fund”). Members of the Insolvency Fund are assessed a proportionate share of the obligations and expenses of the Insolvency Fund in connection with an insolvent insurer. It is anticipated that there will be additional assessments from time to time relating to various insolvencies. Although the timing and amounts of any future assessments are not known, based upon existing knowledge, management’s opinion is that such future assessments will not have a material effect upon the financial position of the Company.
9. Leases
8.Debt
The Company has various non-cancelable, long-term operating leases, the largest of which are for office space including the corporate headquarters, agency locations, VIP claims centers and law offices. Other operating leases consist of auto leases and various office equipment. The Company has no finance leases. Our leases have remaining lease terms of one year to eight years, some of which include options to extend the leases for up to five years.
Certain lease agreements contain renewal options and, in addition to the minimum annual rentals, generally provide for payment of a share of the real estate taxes and operating expenses in excess of a base amount. Rental expense for our office space, law offices and VIP claims centers was $3,948, $3,852 and $3,477 for the years ended December 31, 2022, 2021, and 2020, respectively. All leases expire prior to 2029. The Company expects that in the normal course of business, leases that expire will be renewed.
In calculating lease liabilities the Company uses its incremental borrowing rate as of the application date based on original lease terms. The components of lease expense were as follows:
| | | | | | | | | | |
| | | Year Ended December 31, | |||||||
|
|
| | 2022 | | | 2021 | | | 2020 |
Operating lease cost | | | $ | 4,214 | | $ | 4,464 | | $ | 4,591 |
Other information related to leases was as follows:
| | | | | | | | | |
| | Year Ended December 31, | |||||||
|
| | 2022 | | | 2021 | | | 2020 |
Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | | | |
Operating cash flows from operating leases | | $ | 4,757 | | $ | 4,979 | | $ | 5,073 |
Weighted average remaining lease term | | | | | | | | | |
Operating leases | | | 5.75 Years | | | 6.65 Years | | | 7.57 Years |
Weighted average discount rate | | | | | | | | | |
Operating leases | | | 2.39% | | | 2.34% | | | 2.33% |
81
Maturities of lease liabilities were as follows:
| | | |
|
| Operating Leases | |
2023 | | $ | 4,521 |
2024 | | | 4,269 |
2025 | | | 3,867 |
2026 | | | 3,857 |
2027 | | | 3,857 |
Thereafter | | | 3,860 |
Total lease payments | | | 24,231 |
Less imputed interest | | | (895) |
Total | | $ | 23,336 |
10. | Debt |
On August 10, 2018, the Company extended its Revolving Credit Agreement (the “Credit Agreement”) with Citizens Bank, NA ((formerlyN.A. (formerly known as RBS Citizens, N.A. (“Citizens Bank”)). to a maturity date of August 10, 2023. The Credit Agreement provides a $30,000 revolving credit facility with an accordion feature allowing for future expansion of the committed amount up to $50,000.$50,000. Loans under the credit facility bear interest at the Company’s option at either (i) the LIBOR rate plus 1.25% per annum or (ii) the higher of Citizens Bank prime rate or 0.5% above the federal funds rate plus 1.25% per annum. The Credit Agreement has additional language to select an alternate benchmark interest rate to replace the LIBOR rate when it is no longer available for use. Interest only is payable prior to maturity. The Credit Agreement has a maturity date of August 14, 2018.
The Company’s obligations under the credit facility are secured by pledges of its assets and the capital stock of its operating subsidiaries. The credit facility is guaranteed by the Company’s non‑insurancenon-insurance company subsidiaries. The credit facility contains covenants including requirements to maintain minimum risk‑basedrisk-based capital ratios and statutory surplus of Safety Insurance Company as well as limitations or restrictions on indebtedness, liens, and other matters. As of December 31, 2017,2022, the Company was in compliance with all covenants. In addition, the credit facility includes customary events of default, including a cross‑defaultcross-default provision permitting the lenders to accelerate the facility if the Company (i) defaults in any payment obligation under debt having a principal amount in excess of $10,000 or (ii) fails to perform any other covenant permitting acceleration of all such debt.
The Company had no amounts outstanding on its credit facility at December 31, 20172022 or 2016.2021. The credit facility commitment fee included in interest expense was computed at a rate of 0.25% per annum on the $30,000 commitment at December 31, 20172022 and 2016.2021.
The Company becameis a member of the Federal Home Loan Bank of Boston (“FHLB-Boston”) during the quarter ended September 30, 2014.FHLB-Boston. Membership in the FHLB-Boston allows the Company to borrow money at competitive interest rates provided the loan is collateralized by specific U.S Government residential mortgage backed
82
securities. At December 31, 2017,2022, the Company has the ability to borrow approximately $264,857$201,396 using eligible invested assets that would be used as collateral.
On March 17, 2020, the Company borrowed $30,000 from the FHLB-Boston for a term of five-years, bearing interest at a rate of 1.42%. Interest is payable monthly and the principal is due on the maturity date of March 17, 2025 but may be prepaid in whole or in part by the Company in advance with a minor penalty for prepayment.
On December 29, 2022, the Company borrowed $5,000 from the FHLB-Boston for a term of one-month, bearing interest at a rate of 4.34%. The interest and principal was paid on the maturity date of January 27, 2023.
The Company has no amountsestimates the fair value of the FHLB-Boston loans by discounting cash flows using the interest rate stated in the loan agreements, which is an observable input. As such, the loans are categorized as Level 2 within the fair value hierarchy. The fair value of the outstanding loans was $35,807 and $31,061 at December 31, 2022 and 2021, respectively. The loans are fully collateralized by specific U.S. Government residential mortgage-backed securities with a fair value of $40,195 and $40,398 at year ended December 31, 2022 and 2021, respectively. The borrowing is outstanding from the FHLB-Boston at year ended December 31, 2017.2022 and 2021.
82
9.ReinsuranceInterest expense on the FHLB-Boston borrowing was $524 and $522 for the year ended December 31, 2022 and 2021, respectively.
11. | Reinsurance |
The Company cedes insurance to CAR and to other reinsurers. The Company has a property catastrophevarious excess of loss agreement and a casualty excess of loss agreementquota share agreements that qualify as reinsurance treaties and are designed to protect against large or unusual loss and LAE activity. Reinsurance contracts do not relieve the Company from its obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company evaluates the financial condition of its reinsurers and monitors economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies.
On December 15, 2015, the Company filed for arbitration with a reinsurer in regards to the reinsurance recoverable resulting from the 2015 winter storm losses that are admissible under our contract. The total amount of recoverable in dispute, which is based on our total incurred loss, was $20,918 and $22,838 as of December 31, 2017 and 2016, respectively. The change in the recovery is attributable to changes in the total incurred loss for reserve development.
On January 8, 2018 the Company received a final order from the panel of arbitrators in which the reinsurer would pay the Company $9,200 for settlement of all paid and outstanding losses. The remaining unrecovered amount of $11,718 was expensed in 2017.
The current reinsurance recoverable related to the 2015 snow event from all reinsurers is $675.
The Company is subject to concentration of credit risk with respect to reinsurance ceded. At December 31, 2017,2022, reinsurance receivables on paid and unpaid loss and LAE with a carrying value of $86,291$99,688 and ceded unearned premiums of $30,706$26,377 were associated with CAR. At December 31, 2016,2021, reinsurance receivables on paid and unpaid loss and LAE with a carrying value of $70,623$106,608 and ceded unearned premiums of $26,964$21,841 were associated with CAR. The Company assumes a proportionate share of the obligations from CAR. The Company makes an estimate of its share of assumed activity from the most recent quarter reported by CAR and records adjustments to the reported activity to reflect its anticipated final assumed obligations. The Company’s participation in CAR resulted in assumed net losses of $5,444, $2,341$3,326, $5,002 and $365$3,480 for the years ended December 31, 2017, 20162022, 2021 and 2015,2020, respectively.
CAR has been, with few exceptions, required by law to issue a policy to any applicant who seeks it. As a servicing carrier of CAR, this requirement has applied to the Company.
The effect of assumed and ceded premiums on net written and earned premiums and losses and LAE incurred is as follows.
|
|
|
|
|
|
|
|
|
| |||||||||
|
| Years Ended December 31, | ||||||||||||||||
|
| 2017 |
| 2016 |
| 2015 | ||||||||||||
| | | | | | | | | | |||||||||
| | Years Ended December 31, | ||||||||||||||||
|
| 2022 |
| 2021 |
| 2020 | ||||||||||||
Written Premiums |
|
|
|
|
|
|
|
|
| | | | | | | | | |
Direct |
| $ | 827,316 |
| $ | 811,559 |
| $ | 785,730 | | $ | 823,318 | | $ | 802,139 | | $ | 798,712 |
Assumed |
|
| 34,214 |
|
| 30,424 |
|
| 28,322 | |
| 28,835 | |
| 31,359 | |
| 26,316 |
Ceded |
|
| (80,476) |
|
| (75,513) |
|
| (67,872) | |
| (78,418) | |
| (68,972) | |
| (61,491) |
Net written premiums |
| $ | 781,054 |
| $ | 766,470 |
| $ | 746,180 | | $ | 773,735 | | $ | 764,526 | | $ | 763,537 |
|
|
|
|
|
|
|
|
|
| |||||||||
| | | | | | | | | | |||||||||
Earned Premiums |
|
|
|
|
|
|
|
|
| | | | | | | | | |
Direct |
| $ | 818,804 |
| $ | 796,366 |
| $ | 776,633 | | $ | 803,289 | | $ | 811,329 | | $ | 815,981 |
Assumed |
|
| 32,502 |
|
| 29,544 |
|
| 25,819 | |
| 28,976 | |
| 30,583 | |
| 29,365 |
Ceded |
|
| (76,886) |
|
| (70,150) |
|
| (64,288) | |
| (73,760) | |
| (67,584) | |
| (74,268) |
Net earned premiums |
| $ | 774,420 |
| $ | 755,760 |
| $ | 738,164 | | $ | 758,505 | | $ | 774,328 | | $ | 771,078 |
|
|
|
|
|
|
|
|
|
| |||||||||
| | | | | | | | | | |||||||||
Loss and LAE |
|
|
|
|
|
|
|
|
| | | | | | | | | |
Direct |
| $ | 517,146 |
| $ | 515,506 |
| $ | 688,793 | | $ | 515,535 | | $ | 473,162 | | $ | 428,018 |
Assumed |
|
| 28,003 |
|
| 23,343 |
|
| 22,306 | |
| 18,627 | |
| 16,873 | |
| 18,595 |
Ceded |
|
| (41,262) |
|
| (45,416) |
|
| (98,530) | |
| (42,183) | |
| (28,308) | |
| (42,057) |
Net loss and LAE |
| $ | 503,887 |
| $ | 493,433 |
| $ | 612,569 | | $ | 491,979 | | $ | 461,727 | | $ | 404,556 |
83
10.Loss and Loss Adjustment Expense Reserves
12. | Loss and Loss Adjustment Expense Reserves |
The following table sets forth a reconciliation of beginning and ending reserves for losses and loss adjustment expenses (“LAE”), as shown in the Company’s consolidated financial statements for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
| Years Ended December 31, | |||||||
|
| 2017 |
| 2016 |
|
| 2015 | ||
Reserves for losses and LAE at beginning of year |
| $ | 560,321 |
| $ | 553,977 |
| $ | 482,012 |
Less receivable from reinsurers related to unpaid losses and LAE |
|
| (83,724) |
|
| (68,261) |
|
| (61,245) |
Net reserves for losses and LAE at beginning of year |
|
| 476,597 |
|
| 485,716 |
|
| 420,767 |
Incurred losses and LAE, related to: |
|
|
|
|
|
|
|
|
|
Current year |
|
| 545,671 |
|
| 538,881 |
|
| 642,882 |
Prior years |
|
| (41,784) |
|
| (45,448) |
|
| (30,313) |
Total incurred losses and LAE |
|
| 503,887 |
|
| 493,433 |
|
| 612,569 |
Paid losses and LAE related to: |
|
|
|
|
|
|
|
|
|
Current year |
|
| 325,049 |
|
| 328,046 |
|
| 415,256 |
Prior years |
|
| 164,466 |
|
| 174,506 |
|
| 132,364 |
Total paid losses and LAE |
|
| 489,515 |
|
| 502,552 |
|
| 547,620 |
Net reserves for losses and LAE at end of period |
|
| 490,969 |
|
| 476,597 |
|
| 485,716 |
Plus receivable from reinsurers related to unpaid losses and LAE |
|
| 83,085 |
|
| 83,724 |
|
| 68,261 |
Reserves for losses and LAE at end of period |
| $ | 574,054 |
| $ | 560,321 |
| $ | 553,977 |
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | |
| | Year Ended December 31, | |||||||
|
| 2022 |
| 2021 | |
| 2020 | ||
Reserves for losses and LAE at beginning of year | | $ | 570,651 | | $ | 567,581 | | $ | 610,566 |
Less receivable from reinsurers related to unpaid losses and LAE | |
| (90,667) | |
| (106,311) | | | (122,372) |
Net reserves for losses and LAE at beginning of year | |
| 479,984 | |
| 461,270 | | | 488,194 |
Incurred losses and LAE, related to: | | | | | | | | | |
Current year | |
| 549,258 | |
| 515,400 | | | 459,400 |
Prior years | |
| (57,279) | |
| (53,673) | | | (54,844) |
Total incurred losses and LAE | |
| 491,979 | |
| 461,727 | | | 404,556 |
Paid losses and LAE related to: | | | | | | | | | |
Current year | |
| 342,971 | |
| 310,116 | | | 277,754 |
Prior years | |
| 172,788 | |
| 132,897 | | | 153,726 |
Total paid losses and LAE | |
| 515,759 | |
| 443,013 | | | 431,480 |
Net reserves for losses and LAE at end of period | |
| 456,204 | |
| 479,984 | | | 461,270 |
Plus receivable from reinsurers related to unpaid losses and LAE | |
| 93,394 | |
| 90,667 | | | 106,311 |
Reserves for losses and LAE at end of period | | $ | 549,598 | | $ | 570,651 | | $ | 567,581 |
At the end of each period, the reserves were re‑estimatedre-estimated for all prior accident years. The Company’s prior year reserves decreased by $41,784, $45,448,$57,279, $53,673, and $30,313$54,844, for the years ended 2017, 2016,December 31, 2022, 2021, and 2015,2020, respectively, and resulted from re‑estimationsre-estimations of prior years’ ultimate loss and LAE liabilities. The decrease in prior year reserves during 20172022 was primarily composed of reductions of $29,855$20,241 in the Company’s retained automobile and $10,201$32,963 in the Company’s retained other than auto and homeowners reserves, inclusive of the reinsurance recoverable loss.reserves. The decrease in prior year reserves during 20162021 was primarily composed of reductions of $25,019$22,313 in the Company’s retained automobile and $11,648$26,220 in the Company’s retained other than auto and homeowners reserves. The decrease in prior year reserves during 20152020 was primarily composed of reductions of $18,644$26,902 in the Company’s retained automobile and $7,964$21,717 in the Company’s retained homeowners reserves.
The Company’s private passenger automobile line of business prior year reserves decreased during the years ended December 31, 2017, 20162022, 2021 and 20152020 primarily due to improved retained private passenger results. The improved retained private passenger results were primarily due to fewer incurred but not yet reported claims than previously estimated and better than previously estimated severity on the Company’s established bodily injury and property damage case reserves.
The following is information about incurred and paid claims development as of December 31, 20172022, net of reinsurance, as well as cumulative claim frequency and the total of incurred-but-not-reported liabilities plus expected development on reported claims included within the net incurred claims amounts for our three largest lines of business. The cumulative number of reported claims include claims closed with payment, claims closed without payment and all open claims. It does not include anticipated IBNR claims. For the Private Passenger Automobile and Commercial Automobile lines of business, claim count is defined on a claimant basis where several claim counts may arise from a single auto accident. For Homeowners and all other lines of business, claim count is defined on an accident basis.
The information about incurred claims and allocated claim adjustment expense, net orof reserves and paid ultimate claims development for the years ended December 31, 20082013 to 20152021 is presented as unauditedrequired supplementary information.
84
| | | | | | | | | | | | | | | | | | | | | | | |
Private Passenger Automobile Liability | | | | | | | | | | | | | | | | ||||||||
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | | | | | | | | As of December 31, 2022 | |||||||||||||||
| | | | For the Years Ended December 31, | | | | Total of Incurred-but-Not-Reported Liabilities Plus Expected Development of Reported Claims | Cumulative Number of Reported Claims | ||||||||||||||
Accident Year | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | | |
| | (Unaudited) | | | | | | | | ||||||||||||||
2013 | | $ 183,367 | | $ 183,517 | | $ 183,264 | | $ 181,492 | | $ 179,167 | | $ 176,713 | | $ 175,684 | | $ 175,718 | | $ 175,362 | | $ 175,374 | | ($ 84) | 54,248 |
2014 | | | | 187,305 | | 187,104 | | 186,798 | | 183,119 | | 181,312 | | 179,251 | | 179,267 | | 179,268 | | 179,264 | | (336) | 52,787 |
2015 | | | | | | 190,036 | | 190,236 | | 188,317 | | 184,477 | | 181,299 | | 179,451 | | 179,248 | | 178,951 | | (204) | 52,980 |
2016 | | | | | | | | 192,912 | | 192,318 | | 185,009 | | 180,486 | | 177,009 | | 176,600 | | 176,700 | | (392) | 49,386 |
2017 | | | | | | | | | | 185,673 | | 184,429 | | 182,068 | | 177,941 | | 177,320 | | 176,564 | | (1,723) | 46,257 |
2018 | | | | | | | | | | | | 176,411 | | 175,222 | | 170,447 | | 168,185 | | 166,046 | | (3,040) | 43,085 |
2019 | | | | | | | | | | | | | | 176,171 | | 174,439 | | 170,477 | | 166,940 | | (4,648) | 40,564 |
2020 | | | | | | | | | | | | | | | | 130,335 | | 125,888 | | 120,060 | | (5,880) | 26,172 |
2021 | | | | | | | | | | | | | | | | | | 146,997 | | 147,391 | | (18,015) | 29,994 |
2022 | | | | | | | | | | | | | | | | | | | | 157,921 | | 2,617 | 27,388 |
| | | | | | | | | | | | | | | | | | Total | | $ 1,645,211 | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Private Passenger Automobile Liability | | | | | | | | | | | | | | ||||||||
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | | | | | | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
| | | | For the Years Ended December 31, | | | | ||||||||||||||
Accident Year | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | |
| | (Unaudited) | | | | | | ||||||||||||||
2013 | | $ 79,049 | | $ 135,031 | | $ 152,472 | | $ 163,694 | | $ 169,634 | | $ 172,736 | | $ 173,890 | | $ 174,574 | | $ 174,639 | | $ 174,858 | |
2014 | | | | 79,151 | | 136,434 | | 156,693 | | 166,815 | | 173,163 | | 176,616 | | 177,360 | | 177,968 | | 178,324 | |
2015 | | | | | | 76,934 | | 138,255 | | 156,483 | | 168,641 | | 173,816 | | 176,652 | | 177,782 | | 178,357 | |
2016 | | | | | | | | 78,862 | | 137,917 | | 154,964 | | 167,458 | | 171,865 | | 174,410 | | 175,803 | |
2017 | | | | | | | | | | 77,519 | | 133,037 | | 153,675 | | 164,467 | | 169,024 | | 172,362 | |
2018 | | | | | | | | | | | | 72,895 | | 126,456 | | 143,656 | | 154,169 | | 159,066 | |
2019 | | | | | | | | | | | | | | 72,219 | | 127,910 | | 143,570 | | 154,633 | |
2020 | | | | | | | | | | | | | | | | 52,962 | | 88,037 | | 102,601 | |
2021 | | | | | | | | | | | | | | | | | | 56,826 | | 111,516 | |
2022 | | | | | | | | | | | | | | | | | | | | 61,227 | |
| | | | | | | | | | | | | | | | | | Total | | $ 1,468,747 | |
| | | | | | | | | All outstanding liabilities before 2013, net of reinsurance | | 346 | | |||||||||
| | | | | | Liabilities for claims and claim adjustment expenses, net of reinsurance | | $ 176,810 | | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Passenger Automobile Liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance |
|
|
|
|
|
|
| As of December 31, 2017 | |||||||||||||||
|
|
|
| For the Years Ended December 31, |
|
|
| Total of Incurred-but-Not-Reported Liabilities Plus Expected Development of Reported Claims | Cumulative Number of Reported Claims | ||||||||||||||
Accident Year |
| 2008 |
| 2009 |
| 2010 |
| 2011 |
| 2012 |
| 2013 |
| 2014 |
| 2015 |
| 2016 |
| 2017 |
|
|
|
|
| (Unaudited) |
|
|
|
|
|
|
| ||||||||||||||
| 2008 |
| $ 184,923 |
| $ 178,522 |
| $ 171,359 |
| $ 165,751 |
| $ 162,494 |
| $ 158,899 |
| $ 157,015 |
| $ 156,782 |
| $ 155,432 |
| $ 155,203 |
| $ 326 | 55,948 |
| 2009 |
|
|
| 174,243 |
| 172,667 |
| 168,900 |
| 167,078 |
| 163,593 |
| 160,844 |
| 159,674 |
| 159,021 |
| 158,433 |
| 299 | 55,015 |
| 2010 |
|
|
|
|
| 169,426 |
| 172,558 |
| 171,978 |
| 170,089 |
| 166,195 |
| 164,723 |
| 163,206 |
| 162,679 |
| 1,234 | 54,932 |
| 2011 |
|
|
|
|
|
|
| 176,727 |
| 176,906 |
| 176,906 |
| 175,209 |
| 172,957 |
| 171,852 |
| 170,732 |
| 1,441 | 56,123 |
| 2012 |
|
|
|
|
|
|
|
|
| 175,262 |
| 175,189 |
| 174,856 |
| 170,379 |
| 167,831 |
| 166,008 |
| 2,141 | 53,270 |
| 2013 |
|
|
|
|
|
|
|
|
|
|
| 183,367 |
| 183,517 |
| 183,264 |
| 181,492 |
| 179,167 |
| 887 | 54,240 |
| 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
| 187,305 |
| 187,104 |
| 186,798 |
| 183,119 |
| (742) | 52,770 |
| 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 190,036 |
| 190,236 |
| 188,317 |
| (6,017) | 52,890 |
| 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 192,912 |
| 192,318 |
| (5,470) | 49,050 |
| 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 185,673 |
| (2,536) | 42,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
| $ 1,741,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Passenger Automobile Liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance |
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Years Ended December 31, |
|
|
|
|
| ||||||||||||||
Accident Year |
| 2008 |
| 2009 |
| 2010 |
| 2011 |
| 2012 |
| 2013 |
| 2014 |
| 2015 |
| 2016 |
| 2017 |
|
|
|
|
| (Unaudited) |
|
|
|
|
|
|
| ||||||||||||||
| 2008 |
| $ 72,994 |
| $ 118,287 |
| $ 136,555 |
| $ 144,488 |
| $ 150,932 |
| $ 153,603 |
| $ 154,645 |
| $ 154,788 |
| $ 154,817 |
| $ 154,826 |
|
|
|
| 2009 |
|
|
| 73,808 |
| 121,962 |
| 139,517 |
| 148,807 |
| 153,756 |
| 156,808 |
| 157,440 |
| 157,697 |
| 157,710 |
|
|
|
| 2010 |
|
|
|
|
| 73,721 |
| 126,734 |
| 142,688 |
| 153,408 |
| 157,887 |
| 160,192 |
| 160,859 |
| 161,080 |
|
|
|
| 2011 |
|
|
|
|
|
|
| 76,467 |
| 130,018 |
| 146,532 |
| 158,904 |
| 164,413 |
| 167,251 |
| 168,025 |
|
|
|
| 2012 |
|
|
|
|
|
|
|
|
| 74,306 |
| 126,553 |
| 144,157 |
| 152,991 |
| 157,443 |
| 160,416 |
|
|
|
| 2013 |
|
|
|
|
|
|
|
|
|
|
| 79,049 |
| 135,031 |
| 152,472 |
| 163,694 |
| 169,634 |
|
|
|
| 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
| 79,151 |
| 136,434 |
| 156,693 |
| 166,815 |
|
|
|
| 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 76,934 |
| 138,255 |
| 156,483 |
|
|
|
| 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 78,862 |
| 137,917 |
|
|
|
| 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 77,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
| $ 1,510,425 |
|
|
|
|
|
|
|
|
|
|
|
| All outstanding liabilities before 2008, net of reinsurance |
| 766 |
|
|
| |||||||||
|
|
|
|
|
| Liabilities for claims and claim adjustment expenses, net of reinsurance |
| $ 231,990 |
|
|
| ||||||||||||
85
| | | | | | | | | | | | | | | | | | | | | | | |
Private Passenger Automobile Physical Damage | | | | | | | | | | | | | | | | ||||||||
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | | | | | | | | As of December 31, 2022 | |||||||||||||||
| | | | For the Years Ended December 31, | | | | Total of Incurred-but-Not-Reported Liabilities Plus Expected Development of Reported Claims | Cumulative Number of Reported Claims | ||||||||||||||
Accident Year | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | | |
| | (Unaudited) | | | | | | | | ||||||||||||||
2013 | | $ 114,389 | | $ 114,239 | | $ 113,034 | | $ 112,197 | | $ 112,096 | | $ 112,060 | | $ 112,029 | | $ 112,003 | | $ 111,989 | | $ 111,970 | | $ - | 131,703 |
2014 | | | | 123,421 | | 123,622 | | 122,410 | | 122,327 | | 122,341 | | 122,213 | | 122,188 | | 122,182 | | 122,163 | | - | 135,006 |
2015 | | | | | | 140,219 | | 136,661 | | 134,101 | | 133,737 | | 133,581 | | 133,530 | | 133,523 | | 133,552 | | (3) | 144,276 |
2016 | | | | | | | | 129,528 | | 124,922 | | 122,116 | | 121,717 | | 121,543 | | 121,570 | | 121,615 | | (5) | 126,091 |
2017 | | | | | | | | | | 128,340 | | 126,304 | | 124,128 | | 123,715 | | 123,777 | | 123,779 | | (35) | 124,026 |
2018 | | | | | | | | | | | | 129,450 | | 130,145 | | 128,426 | | 128,090 | | 128,003 | | (63) | 119,760 |
2019 | | | | | | | | | | | | | | 128,698 | | 126,648 | | 124,332 | | 123,858 | | (116) | 117,022 |
2020 | | | | | | | | | | | | | | | | 98,546 | | 97,244 | | 97,644 | | (451) | 81,852 |
2021 | | | | | | | | | | | | | | | | | | 122,943 | | 122,549 | | (1,379) | 89,521 |
2022 | | | | | | | | | | | | | | | | | | | | 141,041 | | (23,926) | 92,198 |
| | | | | | | | | | | | | | | | | | Total | | $ 1,226,174 | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Private Passenger Automobile Physical Damage | | | | | | | | | | | | | ||||||||
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | | | | | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
| | | | For the Years Ended December 31, | | | ||||||||||||||
Accident Year | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 |
| | (Unaudited) | | | | | ||||||||||||||
2013 | | $ 120,843 | | $ 115,904 | | $ 112,894 | | $ 112,162 | | $ 112,085 | | $ 112,060 | | $ 112,029 | | $ 112,003 | | $ 111,988 | | $ 111,970 |
2014 | | | | 130,732 | | 126,414 | | 122,668 | | 122,402 | | 122,350 | | 122,251 | | 122,216 | | 122,189 | | 122,163 |
2015 | | | | | | 143,532 | | 136,760 | | 134,066 | | 133,701 | | 133,639 | | 133,596 | | 133,575 | | 133,555 |
2016 | | | | | | | | 133,530 | | 124,298 | | 122,023 | | 121,795 | | 121,660 | | 121,634 | | 121,618 |
2017 | | | | | | | | | | 132,409 | | 126,822 | | 124,286 | | 123,844 | | 123,839 | | 123,795 |
2018 | | | | | | | | | | | | 138,036 | | 132,591 | | 128,624 | | 128,154 | | 128,054 |
2019 | | | | | | | | | | | | | | 134,429 | | 128,173 | | 124,467 | | 123,974 |
2020 | | | | | | | | | | | | | | | | 102,764 | | 98,819 | | 98,083 |
2021 | | | | | | | | | | | | | | | | | | 123,636 | | 123,847 |
2022 | | | | | | | | | | | | | | | | | | | | 142,002 |
| | | | | | | | | | | | | | | | | | Total | | $ 1,229,061 |
| | | | | | | | | All outstanding liabilities before 2013, net of reinsurance | | - | |||||||||
| | | | | | Liabilities for claims and claim adjustment expenses, net of reinsurance | | ($ 2,887) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Passenger Automobile Physical Damage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance |
|
|
|
|
|
|
| As of December 31, 2017 | |||||||||||||||
|
|
|
| For the Years Ended December 31, |
|
|
| Total of Incurred-but-Not-Reported Liabilities Plus Expected Development of Reported Claims | Cumulative Number of Reported Claims | ||||||||||||||
Accident Year |
| 2008 |
| 2009 |
| 2010 |
| 2011 |
| 2012 |
| 2013 |
| 2014 |
| 2015 |
| 2016 |
| 2017 |
|
|
|
|
| (Unaudited) |
|
|
|
|
|
|
| ||||||||||||||
| 2008 |
| $ 101,471 |
| $ 99,626 |
| $ 99,960 |
| $ 99,883 |
| $ 99,822 |
| $ 99,806 |
| $ 99,791 |
| $ 99,792 |
| $ 99,816 |
| $ 99,809 |
| $ 6 | 130,706 |
| 2009 |
|
|
| 96,219 |
| 93,993 |
| 93,156 |
| 93,058 |
| 93,060 |
| 93,021 |
| 93,036 |
| 93,014 |
| 93,002 |
| 4 | 127,434 |
| 2010 |
|
|
|
|
| 101,456 |
| 98,463 |
| 96,642 |
| 96,485 |
| 96,385 |
| 96,366 |
| 96,325 |
| 96,323 |
| 6 | 128,200 |
| 2011 |
|
|
|
|
|
|
| 118,131 |
| 117,951 |
| 115,028 |
| 113,821 |
| 113,765 |
| 113,674 |
| 113,677 |
| 3 | 140,509 |
| 2012 |
|
|
|
|
|
|
|
|
| 108,376 |
| 107,912 |
| 104,393 |
| 103,679 |
| 103,575 |
| 103,547 |
| 7 | 123,641 |
| 2013 |
|
|
|
|
|
|
|
|
|
|
| 114,389 |
| 114,239 |
| 113,034 |
| 112,197 |
| 112,096 |
| (29) | 131,703 |
| 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
| 123,421 |
| 123,622 |
| 122,410 |
| 122,327 |
| (69) | 134,998 |
| 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 140,219 |
| 136,661 |
| 134,101 |
| 21 | 144,237 |
| 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 129,528 |
| 124,922 |
| 486 | 125,983 |
| 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 128,340 |
| (18,658) | 120,665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
| $ 1,128,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Passenger Automobile Physical Damage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance |
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Years Ended December 31, |
|
|
|
|
| ||||||||||||||
Accident Year |
| 2008 |
| 2009 |
| 2010 |
| 2011 |
| 2012 |
| 2013 |
| 2014 |
| 2015 |
| 2016 |
| 2017 |
|
|
|
|
| (Unaudited) |
|
|
|
|
|
|
| ||||||||||||||
| 2008 |
| $ 98,451 |
| $ 100,648 |
| $ 99,976 |
| $ 99,939 |
| $ 99,853 |
| $ 99,807 |
| $ 99,791 |
| $ 99,770 |
| $ 99,768 |
| $ 99,758 |
|
|
|
| 2009 |
|
|
| 96,496 |
| 94,258 |
| 93,187 |
| 93,116 |
| 93,049 |
| 93,024 |
| 93,026 |
| 93,012 |
| 92,998 |
|
|
|
| 2010 |
|
|
|
|
| 101,635 |
| 98,445 |
| 96,587 |
| 96,444 |
| 96,369 |
| 96,335 |
| 96,325 |
| 96,317 |
|
|
|
| 2011 |
|
|
|
|
|
|
| 126,196 |
| 117,152 |
| 114,451 |
| 113,809 |
| 113,719 |
| 113,673 |
| 113,669 |
|
|
|
| 2012 |
|
|
|
|
|
|
|
|
| 111,928 |
| 107,017 |
| 104,311 |
| 103,664 |
| 103,573 |
| 103,537 |
|
|
|
| 2013 |
|
|
|
|
|
|
|
|
|
|
| 120,843 |
| 115,904 |
| 112,894 |
| 112,162 |
| 112,085 |
|
|
|
| 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
| 130,732 |
| 126,414 |
| 122,668 |
| 122,402 |
|
|
|
| 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 143,532 |
| 136,760 |
| 134,066 |
|
|
|
| 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 133,530 |
| 124,298 |
|
|
|
| 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 132,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
| $ 1,131,539 |
|
|
|
|
|
|
|
|
|
|
|
| All outstanding liabilities before 2008, net of reinsurance |
| 0 |
|
|
| |||||||||
|
|
|
|
|
| Liabilities for claims and claim adjustment expenses, net of reinsurance |
| $ (3,395) |
|
|
| ||||||||||||
86
| | | | | | | | | | | | | | | | | | | | | | | |
Commercial Automobile Liability | | | | | | | | | | | | | | | | ||||||||
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | | | | | | | | As of December 31, 2022 | |||||||||||||||
| | | | For the Years Ended December 31, | | | | Total of Incurred-but-Not-Reported Liabilities Plus Expected Development of Reported Claims | Cumulative Number of Reported Claims | ||||||||||||||
Accident Year | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | | |
| | (Unaudited) | | | | | | | | ||||||||||||||
2013 | | $ 29,175 | | $ 29,541 | | $ 28,377 | | $ 26,864 | | $ 26,310 | | $ 25,986 | | $ 25,443 | | $ 25,353 | | $ 25,140 | | $ 25,052 | | $ 1 | 5,784 |
2014 | | | | 34,117 | | 34,105 | | 34,376 | | 33,914 | | 32,948 | | 32,438 | | 32,200 | | 32,052 | | 32,313 | | 2 | 6,086 |
2015 | | | | | | 35,371 | | 36,150 | | 36,610 | | 37,730 | | 38,015 | | 38,257 | | 37,995 | | 37,630 | | (62) | 7,212 |
2016 | | | | | | | | 37,954 | | 39,416 | | 40,947 | | 40,916 | | 40,679 | | 40,996 | | 40,767 | | 56 | 6,457 |
2017 | | | | | | | | | | 42,865 | | 41,373 | | 41,055 | | 39,369 | | 39,232 | | 38,185 | | (6) | 6,134 |
2018 | | | | | | | | | | | | 41,347 | | 40,115 | | 38,589 | | 37,322 | | 36,014 | | 107 | 5,744 |
2019 | | | | | | | | | | | | | | 51,679 | | 49,163 | | 48,783 | | 46,964 | | 666 | 5,682 |
2020 | | | | | | | | | | | | | | | | 35,010 | | 31,930 | | 30,869 | | 2,867 | 3,463 |
2021 | | | | | | | | | | | | | | | | | | 41,814 | | 39,564 | | 229 | 4,260 |
2022 | | | | | | | | | | | | | | | | | | | | 43,496 | | 12,054 | 3,893 |
| | | | | | | | | | | | | | | | | | Total | | $ 370,854 | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Commercial Automobile Liability | | | | | | | | | | | | | ||||||||
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | | | | | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
| | | | For the Years Ended December 31, | | | ||||||||||||||
Accident Year | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 |
| | (Unaudited) | | | | | ||||||||||||||
2013 | | $ 8,502 | | $ 17,079 | | $ 19,625 | | $ 21,129 | | $ 22,434 | | $ 23,867 | | $ 24,507 | | $ 24,732 | | $ 24,789 | | $ 24,799 |
2014 | | | | 9,426 | | 17,853 | | 21,968 | | 25,253 | | 27,886 | | 30,420 | | 31,298 | | 31,451 | | 32,085 |
2015 | | | | | | 11,181 | | 21,700 | | 26,018 | | 29,804 | | 31,537 | | 33,416 | | 34,976 | | 35,302 |
2016 | | | | | | | | 9,991 | | 19,902 | | 25,711 | | 32,274 | | 36,237 | | 38,275 | | 39,233 |
2017 | | | | | | | | | | 10,407 | | 20,106 | | 24,409 | | 28,721 | | 31,389 | | 33,569 |
2018 | | | | | | | | | | | | 9,704 | | 18,499 | | 23,544 | | 26,774 | | 29,336 |
2019 | | | | | | | | | | | | | | 12,113 | | 22,480 | | 28,373 | | 36,048 |
2020 | | | | | | | | | | | | | | | | 7,025 | | 13,166 | | 16,268 |
2021 | | | | | | | | | | | | | | | | | | 7,883 | | 17,925 |
2022 | | | | | | | | | | | | | | | | | | | | 10,941 |
| | | | | | | | | | | | | | | | | | Total | | $ 275,506 |
| | | | | | | | | All outstanding liabilities before 2013, net of reinsurance | | - | |||||||||
| | | | | | Liabilities for claims and claim adjustment expenses, net of reinsurance | | $ 95,348 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Automobile Liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance |
|
|
|
|
|
|
| As of December 31, 2017 | |||||||||||||||
|
|
|
| For the Years Ended December 31, |
|
|
| Total of Incurred-but-Not-Reported Liabilities Plus Expected Development of Reported Claims | Cumulative Number of Reported Claims | ||||||||||||||
Accident Year |
| 2008 |
| 2009 |
| 2010 |
| 2011 |
| 2012 |
| 2013 |
| 2014 |
| 2015 |
| 2016 |
| 2017 |
|
|
|
|
| (Unaudited) |
|
|
|
|
|
|
| ||||||||||||||
| 2008 |
| $ 27,399 |
| $ 26,868 |
| $ 25,526 |
| $ 24,827 |
| $ 25,133 |
| $ 24,729 |
| $ 24,535 |
| $ 24,057 |
| $ 23,852 |
| $ 23,852 |
| $ 30 | 5,367 |
| 2009 |
|
|
| 23,292 |
| 22,757 |
| 22,416 |
| 21,968 |
| 21,938 |
| 21,720 |
| 21,564 |
| 21,461 |
| 21,193 |
| 150 | 4,755 |
| 2010 |
|
|
|
|
| 20,150 |
| 19,922 |
| 19,493 |
| 19,576 |
| 19,763 |
| 19,285 |
| 19,034 |
| 18,725 |
| 288 | 4,531 |
| 2011 |
|
|
|
|
|
|
| 23,658 |
| 24,298 |
| 24,160 |
| 24,187 |
| 23,649 |
| 22,933 |
| 22,817 |
| 173 | 4,958 |
| 2012 |
|
|
|
|
|
|
|
|
| 23,704 |
| 24,447 |
| 24,662 |
| 24,723 |
| 24,572 |
| 23,819 |
| 888 | 4,566 |
| 2013 |
|
|
|
|
|
|
|
|
|
|
| 29,175 |
| 29,541 |
| 28,377 |
| 26,864 |
| 26,310 |
| 908 | 5,782 |
| 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
| 34,117 |
| 34,105 |
| 34,376 |
| 33,914 |
| 1,226 | 6,084 |
| 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 35,371 |
| 36,150 |
| 36,610 |
| (1,606) | 7,197 |
| 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 37,954 |
| 39,416 |
| (1,731) | 6,404 |
| 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 42,865 |
| 13,208 | 5,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
| $ 289,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Automobile Liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance |
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Years Ended December 31, |
|
|
|
|
| ||||||||||||||
Accident Year |
| 2008 |
| 2009 |
| 2010 |
| 2011 |
| 2012 |
| 2013 |
| 2014 |
| 2015 |
| 2016 |
| 2017 |
|
|
|
|
| (Unaudited) |
|
|
|
|
|
|
| ||||||||||||||
| 2008 |
| $ 7,106 |
| $ 13,711 |
| $ 17,216 |
| $ 20,085 |
| $ 22,344 |
| $ 23,416 |
| $ 23,762 |
| $ 23,732 |
| $ 23,764 |
| $ 23,771 |
|
|
|
| 2009 |
|
|
| 6,811 |
| 12,705 |
| 15,196 |
| 17,237 |
| 19,004 |
| 20,589 |
| 20,988 |
| 21,026 |
| 21,026 |
|
|
|
| 2010 |
|
|
|
|
| 6,466 |
| 11,520 |
| 13,816 |
| 15,821 |
| 17,351 |
| 17,892 |
| 18,113 |
| 18,269 |
|
|
|
| 2011 |
|
|
|
|
|
|
| 7,306 |
| 14,263 |
| 17,807 |
| 19,783 |
| 20,941 |
| 21,913 |
| 22,043 |
|
|
|
| 2012 |
|
|
|
|
|
|
|
|
| 6,503 |
| 12,474 |
| 15,617 |
| 17,804 |
| 18,876 |
| 20,601 |
|
|
|
| 2013 |
|
|
|
|
|
|
|
|
|
|
| 8,502 |
| 17,079 |
| 19,625 |
| 21,129 |
| 22,434 |
|
|
|
| 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
| 9,426 |
| 17,853 |
| 21,968 |
| 25,253 |
|
|
|
| 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 11,181 |
| 21,700 |
| 26,018 |
|
|
|
| 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 9,991 |
| 19,902 |
|
|
|
| 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 10,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
| $ 209,724 |
|
|
|
|
|
|
|
|
|
|
|
| All outstanding liabilities before 2008, net of reinsurance |
| 221 |
|
|
| |||||||||
|
|
|
|
|
| Liabilities for claims and claim adjustment expenses, net of reinsurance |
| $ 80,018 |
|
|
| ||||||||||||
87
| | | | | | | | | | | | | | | | | | | | | | | |
Commercial Automobile Physical Damage | | | | | | | | | | | | | | | | ||||||||
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | | | | | | | | As of December 31, 2022 | |||||||||||||||
| | | | For the Years Ended December 31, | | | | Total of Incurred-but-Not-Reported Liabilities Plus Expected Development of Reported Claims | Cumulative Number of Reported Claims | ||||||||||||||
Accident Year | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | | |
| | (Unaudited) | | | | | | | | ||||||||||||||
2013 | | $ 13,666 | | $ 13,567 | | $ 13,298 | | $ 13,180 | | $ 13,057 | | $ 13,047 | | $ 13,071 | | $ 13,057 | | $ 13,057 | | $ 13,055 | | $ - | 12,298 |
2014 | | | | 17,426 | | 16,925 | | 15,455 | | 15,419 | | 15,353 | | 15,381 | | 15,373 | | 15,376 | | 15,376 | | - | 13,545 |
2015 | | | | | | 20,223 | | 19,047 | | 19,021 | | 18,974 | | 18,641 | | 18,535 | | 18,525 | | 18,523 | | - | 15,468 |
2016 | | | | | | | | 20,216 | | 18,506 | | 17,909 | | 17,808 | | 17,725 | | 17,713 | | 17,721 | | 1 | 13,593 |
2017 | | | | | | | | | | 19,691 | | 19,200 | | 19,021 | | 18,834 | | 18,780 | | 18,774 | | 2 | 13,113 |
2018 | | | | | | | | | | | | 21,230 | | 19,937 | | 19,270 | | 19,210 | | 19,196 | | 2 | 12,907 |
2019 | | | | | | | | | | | | | | 20,039 | | 19,652 | | 18,956 | | 18,685 | | 0 | 12,757 |
2020 | | | | | | | | | | | | | | | | 16,507 | | 16,334 | | 16,606 | | 198 | 9,620 |
2021 | | | | | | | | | | | | | | | | | | 20,156 | | 21,524 | | (124) | 11,494 |
2022 | | | | | | | | | | | | | | | | | | | | 27,459 | | (345) | 12,118 |
| | | | | | | | | | | | | | | | | | Total | | $ 186,919 | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Commercial Automobile Physical Damage | | | | | | | | | | | | | | ||||||||
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | | | | | | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
| | | | For the Years Ended December 31, | | | | ||||||||||||||
Accident Year | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | |
| | (Unaudited) | | | | | | ||||||||||||||
2013 | | $ 12,665 | | $ 13,378 | | $ 13,114 | | $ 13,074 | | $ 13,065 | | $ 13,060 | | $ 13,066 | | $ 13,057 | | $ 13,057 | | $ 13,055 | |
2014 | | | | 15,377 | | 15,862 | | 15,424 | | 15,388 | | 15,381 | | 15,376 | | 15,373 | | 15,376 | | 15,376 | |
2015 | | | | | | 17,787 | | 18,910 | | 18,667 | | 18,549 | | 18,541 | | 18,530 | | 18,525 | | 18,523 | |
2016 | | | | | | | | 17,228 | | 18,143 | | 17,763 | | 17,712 | | 17,709 | | 17,712 | | 17,721 | |
2017 | | | | | | | | | | 17,957 | | 19,336 | | 18,915 | | 18,787 | | 18,786 | | 18,772 | |
2018 | | | | | | | | | | | | 18,842 | | 19,842 | | 19,236 | | 19,208 | | 19,194 | |
2019 | | | | | | | | | | | | | | 18,128 | | 19,161 | | 18,752 | | 18,681 | |
2020 | | | | | | | | | | | | | | | | 15,550 | | 16,596 | | 16,407 | |
2021 | | | | | | | | | | | | | | | | | | 18,610 | | 21,620 | |
2022 | | | | | | | | | | | | | | | | | | | | 24,381 | |
| | | | | | | | | | | | | | | | | | Total | | $ 183,730 | |
| | | | | | | | | All outstanding liabilities before 2013, net of reinsurance | | - | | |||||||||
| | | | | | Liabilities for claims and claim adjustment expenses, net of reinsurance | | $ 3,189 | | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Automobile Physical Damage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance |
|
|
|
|
|
|
| As of December 31, 2017 | |||||||||||||||
|
|
|
| For the Years Ended December 31, |
|
|
| Total of Incurred-but-Not-Reported Liabilities Plus Expected Development of Reported Claims | Cumulative Number of Reported Claims | ||||||||||||||
Accident Year |
| 2008 |
| 2009 |
| 2010 |
| 2011 |
| 2012 |
| 2013 |
| 2014 |
| 2015 |
| 2016 |
| 2017 |
|
|
|
|
| (Unaudited) |
|
|
|
|
|
|
| ||||||||||||||
| 2008 |
| $ 10,990 |
| $ 11,441 |
| $ 11,491 |
| $ 11,684 |
| $ 11,721 |
| $ 11,675 |
| $ 11,677 |
| $ 11,667 |
| $ 11,634 |
| $ 11,663 |
| $ (25) | 12,420 |
| 2009 |
|
|
| 10,786 |
| 9,987 |
| 9,904 |
| 9,981 |
| 9,913 |
| 9,935 |
| 9,981 |
| 9,981 |
| 10,002 |
| (30) | 11,593 |
| 2010 |
|
|
|
|
| 10,048 |
| 9,963 |
| 9,893 |
| 9,892 |
| 10,077 |
| 9,955 |
| 9,916 |
| 9,990 |
| (36) | 10,555 |
| 2011 |
|
|
|
|
|
|
| 11,511 |
| 11,151 |
| 11,031 |
| 10,960 |
| 10,952 |
| 10,910 |
| 10,952 |
| (98) | 11,488 |
| 2012 |
|
|
|
|
|
|
|
|
| 10,382 |
| 10,382 |
| 10,331 |
| 10,249 |
| 10,250 |
| 10,208 |
| (28) | 9,913 |
| 2013 |
|
|
|
|
|
|
|
|
|
|
| 13,666 |
| 13,567 |
| 13,298 |
| 13,180 |
| 13,057 |
| (11) | 12,298 |
| 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
| 17,426 |
| 16,925 |
| 15,455 |
| 15,419 |
| 25 | 13,545 |
| 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 20,223 |
| 19,047 |
| 19,021 |
| 335 | 15,464 |
| 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 20,216 |
| 18,506 |
| 329 | 13,579 |
| 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 19,691 |
| 163 | 12,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
| $ 138,509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Automobile Physical Damage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance |
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Years Ended December 31, |
|
|
|
|
| ||||||||||||||
Accident Year |
| 2008 |
| 2009 |
| 2010 |
| 2011 |
| 2012 |
| 2013 |
| 2014 |
| 2015 |
| 2016 |
| 2017 |
|
|
|
|
| (Unaudited) |
|
|
|
|
|
|
| ||||||||||||||
| 2008 |
| $ 10,604 |
| $ 11,807 |
| $ 11,733 |
| $ 11,737 |
| $ 11,756 |
| $ 11,735 |
| $ 11,733 |
| $ 11,732 |
| $ 11,734 |
| $ 11,734 |
|
|
|
| 2009 |
|
|
| 9,707 |
| 10,253 |
| 10,079 |
| 10,004 |
| 10,034 |
| 10,035 |
| 10,034 |
| 10,034 |
| 10,032 |
|
|
|
| 2010 |
|
|
|
|
| 9,398 |
| 10,219 |
| 10,053 |
| 10,039 |
| 10,028 |
| 10,025 |
| 10,027 |
| 10,026 |
|
|
|
| 2011 |
|
|
|
|
|
|
| 11,006 |
| 11,119 |
| 11,092 |
| 11,060 |
| 11,055 |
| 11,053 |
| 11,050 |
|
|
|
| 2012 |
|
|
|
|
|
|
|
|
| 9,707 |
| 10,553 |
| 10,270 |
| 10,242 |
| 10,239 |
| 10,235 |
|
|
|
| 2013 |
|
|
|
|
|
|
|
|
|
|
| 12,665 |
| 13,378 |
| 13,114 |
| 13,074 |
| 13,065 |
|
|
|
| 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
| 15,377 |
| 15,862 |
| 15,424 |
| 15,388 |
|
|
|
| 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 17,787 |
| 18,910 |
| 18,667 |
|
|
|
| 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 17,228 |
| 18,143 |
|
|
|
| 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 17,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
| $ 136,297 |
|
|
|
|
|
|
|
|
|
|
|
| All outstanding liabilities before 2008, net of reinsurance |
| 0 |
|
|
| |||||||||
|
|
|
|
|
| Liabilities for claims and claim adjustment expenses, net of reinsurance |
| $ 2,212 |
|
|
| ||||||||||||
88
| | | | | | | | | | | | | | | | | | | | | | | |
Homeowners Liability | | | | | | | | | | | | | | | | ||||||||
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | | | | | | | | As of December 31, 2022 | |||||||||||||||
| | | | For the Years Ended December 31, | | | | Total of Incurred-but-Not-Reported Liabilities Plus Expected Development of Reported Claims | Cumulative Number of Reported Claims | ||||||||||||||
Accident Year | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | | |
| | (Unaudited) | | | | | | | | ||||||||||||||
2013 | | $ 9,768 | | $ 9,768 | | $ 9,337 | | $ 7,578 | | $ 5,978 | | $ 5,312 | | $ 5,147 | | $ 5,147 | | $ 5,167 | | $ 5,096 | | $ - | 265 |
2014 | | | | 11,494 | | 11,494 | | 9,738 | | 7,388 | | 7,120 | | 6,984 | | 6,984 | | 6,818 | | 6,620 | | - | 261 |
2015 | | | | | | 12,965 | | 12,555 | | 9,908 | | 9,201 | | 9,201 | | 9,201 | | 8,172 | | 7,582 | | 117 | 288 |
2016 | | | | | | | | 10,594 | | 10,594 | | 10,594 | | 9,847 | | 9,491 | | 9,491 | | 8,873 | | 151 | 277 |
2017 | | | | | | | | | | 11,276 | | 10,058 | | 9,328 | | 8,585 | | 7,819 | | 7,053 | | 267 | 269 |
2018 | | | | | | | | | | | | 9,951 | | 9,951 | | 9,951 | | 9,768 | | 8,616 | | 375 | 254 |
2019 | | | | | | | | | | | | | | 14,130 | | 13,848 | | 11,949 | | 11,371 | | 396 | 261 |
2020 | | | | | | | | | | | | | | | | 14,664 | | 13,708 | | 11,025 | | 700 | 222 |
2021 | | | | | | | | | | | | | | | | | | 12,797 | | 12,797 | | (1,094) | 210 |
2022 | | | | | | | | | | | | | | | | | | | | 12,973 | | 4,724 | 173 |
| | | | | | | | | | | | | | | | | | Total | | $ 92,006 | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homeowners Liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance |
|
|
|
|
|
|
| As of December 31, 2017 | |||||||||||||||
|
|
|
| For the Years Ended December 31, |
|
|
| Total of Incurred-but-Not-Reported Liabilities Plus Expected Development of Reported Claims | Cumulative Number of Reported Claims | ||||||||||||||
Accident Year |
| 2008 |
| 2009 |
| 2010 |
| 2011 |
| 2012 |
| 2013 |
| 2014 |
| 2015 |
| 2016 |
| 2017 |
|
|
|
|
| (Unaudited) |
|
|
|
|
|
|
| ||||||||||||||
| 2008 |
| $ 5,535 |
| $ 5,535 |
| $ 5,183 |
| $ 4,078 |
| $ 3,473 |
| $ 3,473 |
| $ 3,116 |
| $ 3,030 |
| $ 2,877 |
| $ 2,877 |
| $ 45 | 151 |
| 2009 |
|
|
| 4,637 |
| 4,637 |
| 4,637 |
| 4,012 |
| 3,456 |
| 3,072 |
| 3,015 |
| 2,966 |
| 2,966 |
| 99 | 200 |
| 2010 |
|
|
|
|
| 5,591 |
| 5,422 |
| 5,422 |
| 4,888 |
| 4,717 |
| 4,098 |
| 3,735 |
| 3,612 |
| 100 | 217 |
| 2011 |
|
|
|
|
|
|
| 6,260 |
| 7,644 |
| 7,644 |
| 7,531 |
| 6,923 |
| 6,017 |
| 5,546 |
| 132 | 304 |
| 2012 |
|
|
|
|
|
|
|
|
| 7,514 |
| 7,514 |
| 7,514 |
| 6,464 |
| 5,304 |
| 4,331 |
| 446 | 249 |
| 2013 |
|
|
|
|
|
|
|
|
|
|
| 9,768 |
| 9,768 |
| 9,337 |
| 7,578 |
| 5,978 |
| 536 | 262 |
| 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
| 11,494 |
| 11,494 |
| 9,738 |
| 7,388 |
| 1,041 | 260 |
| 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 12,965 |
| 12,555 |
| 9,908 |
| (1,442) | 282 |
| 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 10,594 |
| 10,594 |
| 913 | 257 |
| 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 11,276 |
| 5,077 | 211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
| $ 64,476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homeowners Liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance |
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Years Ended December 31, |
|
|
|
|
| ||||||||||||||
Accident Year |
| 2008 |
| 2009 |
| 2010 |
| 2011 |
| 2012 |
| 2013 |
| 2014 |
| 2015 |
| 2016 |
| 2017 |
|
|
|
|
| (Unaudited) |
|
|
|
|
|
|
| ||||||||||||||
| 2008 |
| $ 333 |
| $ 1,497 |
| $ 2,143 |
| $ 2,473 |
| $ 2,575 |
| $ 2,670 |
| $ 2,693 |
| $ 2,709 |
| $ 2,727 |
| $ 2,734 |
|
|
|
| 2009 |
|
|
| 535 |
| 1,411 |
| 2,092 |
| 2,607 |
| 2,813 |
| 2,867 |
| 2,867 |
| 2,867 |
| 2,867 |
|
|
|
| 2010 |
|
|
|
|
| 963 |
| 1,420 |
| 2,684 |
| 2,890 |
| 3,214 |
| 3,425 |
| 3,472 |
| 3,457 |
|
|
|
| 2011 |
|
|
|
|
|
|
| 235 |
| 1,969 |
| 3,459 |
| 4,336 |
| 4,497 |
| 4,536 |
| 4,758 |
|
|
|
| 2012 |
|
|
|
|
|
|
|
|
| 1,389 |
| 2,063 |
| 2,308 |
| 2,731 |
| 3,029 |
| 3,600 |
|
|
|
| 2013 |
|
|
|
|
|
|
|
|
|
|
| 527 |
| 2,337 |
| 3,080 |
| 3,493 |
| 3,829 |
|
|
|
| 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
| 340 |
| 1,834 |
| 3,212 |
| 4,200 |
|
|
|
| 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 428 |
| 3,319 |
| 4,267 |
|
|
|
| 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 647 |
| 2,669 |
|
|
|
| 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
| $ 32,686 |
|
|
|
|
|
|
|
|
|
|
|
| All outstanding liabilities before 2008, net of reinsurance |
| 155 |
|
|
| |||||||||
|
|
|
|
|
| Liabilities for claims and claim adjustment expenses, net of reinsurance |
| $ 31,945 |
|
|
| ||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
Homeowners Liability | | | | | | | | | | | | | | ||||||||
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | | | | | | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
| | | | For the Years Ended December 31, | | | | ||||||||||||||
Accident Year | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | |
| | (Unaudited) | | | | | | ||||||||||||||
2013 | | $ 527 | | $ 2,337 | | $ 3,080 | | $ 3,493 | | $ 3,829 | | $ 4,038 | | $ 4,209 | | $ 4,247 | | $ 4,255 | | $ 4,267 | |
2014 | | | | 340 | | 1,834 | | 3,212 | | 4,200 | | 4,828 | | 6,315 | | 6,368 | | 6,419 | | 6,419 | |
2015 | | | | | | 428 | | 3,319 | | 4,267 | | 5,205 | | 6,445 | | 7,022 | | 7,215 | | 7,302 | |
2016 | | | | | | | | 647 | | 2,669 | | 4,257 | | 5,387 | | 6,300 | | 7,128 | | 7,628 | |
2017 | | | | | | | | | | 305 | | 1,676 | | 2,913 | | 3,593 | | 4,217 | | 4,765 | |
2018 | | | | | | | | | | | | 551 | | 2,039 | | 3,972 | | 4,597 | | 5,664 | |
2019 | | | | | | | | | | | | | | 1,634 | | 3,343 | | 5,183 | | 6,038 | |
2020 | | | | | | | | | | | | | | | | 220 | | 3,254 | | 3,845 | |
2021 | | | | | | | | | | | | | | | | | | 218 | | 3,388 | |
2022 | | | | | | | | | | | | | | | | | | | | 450 | |
| | | | | | | | | | | | | | | | | | Total | | $ 49,766 | |
| | | | | | | | | All outstanding liabilities before 2013, net of reinsurance | | - | | |||||||||
| | | | | | Liabilities for claims and claim adjustment expenses, net of reinsurance | | $ 42,240 | | ||||||||||||
89
| | | | | | | | | | | | | | | | | | | | | | | |
Homeowners Property Damage | | | | | | | | | | | | | | | | ||||||||
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | | | | | | | | As of December 31, 2022 | |||||||||||||||
| | | | For the Years Ended December 31, | | | | Total of Incurred-but-Not-Reported Liabilities Plus Expected Development of Reported Claims | Cumulative Number of Reported Claims | ||||||||||||||
Accident Year | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | | |
| | (Unaudited) | | | | | | | | ||||||||||||||
2013 | | $ 56,298 | | $ 56,199 | | $ 55,722 | | $ 52,464 | | $ 51,077 | | $ 49,973 | | $ 49,463 | | $ 49,456 | | $ 49,455 | | $ 49,453 | | $ 126 | 5,698 |
2014 | | | | 59,160 | | 60,213 | | 59,751 | | 57,331 | | 55,127 | | 54,607 | | 54,602 | | 54,560 | | 54,556 | | 251 | 6,077 |
2015 | | | | | | 152,586 | | 152,049 | | 162,377 | | 162,788 | | 162,722 | | 162,354 | | 162,244 | | 162,244 | | 462 | 20,076 |
2016 | | | | | | | | 67,116 | | 66,442 | | 64,208 | | 61,262 | | 60,019 | | 59,898 | | 59,857 | | 312 | 5,421 |
2017 | | | | | | | | | | 80,736 | | 76,560 | | 70,689 | | 68,737 | | 67,530 | | 67,388 | | 385 | 6,011 |
2018 | | | | | | | | | | | | 83,443 | | 82,581 | | 77,970 | | 74,989 | | 73,996 | | 461 | 8,239 |
2019 | | | | | | | | | | | | | | 77,976 | | 73,697 | | 68,769 | | 65,624 | | 705 | 5,452 |
2020 | | | | | | | | | | | | | | | | 80,093 | | 76,638 | | 72,622 | | 344 | 6,108 |
2021 | | | | | | | | | | | | | | | | | | 75,696 | | 75,011 | | (8,085) | 6,335 |
2022 | | | | | | | | | | | | | | | | | | | | 72,523 | | (4,404) | 4,770 |
| | | | | | | | | | | | | | | | | | Total | | $ 753,274 | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homeowners Property Damage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance |
|
|
|
|
|
|
| As of December 31, 2017 | |||||||||||||||
|
|
|
| For the Years Ended December 31, |
|
|
| Total of Incurred-but-Not-Reported Liabilities Plus Expected Development of Reported Claims | Cumulative Number of Reported Claims | ||||||||||||||
Accident Year |
| 2008 |
| 2009 |
| 2010 |
| 2011 |
| 2012 |
| 2013 |
| 2014 |
| 2015 |
| 2016 |
| 2017 |
|
|
|
|
| (Unaudited) |
|
|
|
|
|
|
| ||||||||||||||
| 2008 |
| $ 24,108 |
| $ 23,167 |
| $ 22,671 |
| $ 22,873 |
| $ 22,847 |
| $ 22,792 |
| $ 22,726 |
| $ 22,720 |
| $ 22,690 |
| $ 22,691 |
| $ 139 | 4,389 |
| 2009 |
|
|
| 27,483 |
| 27,024 |
| 27,233 |
| 26,913 |
| 26,244 |
| 25,977 |
| 25,967 |
| 25,922 |
| 25,922 |
| 167 | 3,651 |
| 2010 |
|
|
|
|
| 45,342 |
| 44,550 |
| 43,021 |
| 40,868 |
| 39,921 |
| 39,658 |
| 39,501 |
| 39,501 |
| 253 | 6,685 |
| 2011 |
|
|
|
|
|
|
| 95,586 |
| 98,021 |
| 97,571 |
| 94,657 |
| 93,914 |
| 93,186 |
| 92,595 |
| 372 | 15,116 |
| 2012 |
|
|
|
|
|
|
|
|
| 50,351 |
| 49,911 |
| 47,392 |
| 44,380 |
| 43,097 |
| 42,382 |
| 512 | 6,051 |
| 2013 |
|
|
|
|
|
|
|
|
|
|
| 56,298 |
| 56,199 |
| 55,722 |
| 52,464 |
| 51,077 |
| 1,141 | 5,697 |
| 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
| 59,160 |
| 60,213 |
| 59,751 |
| 57,331 |
| 2,468 | 6,074 |
| 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 152,586 |
| 152,049 |
| 162,377 |
| (15,276) | 20,068 |
| 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 67,116 |
| 66,442 |
| (1,141) | 5,406 |
| 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 80,736 |
| 6,774 | 5,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
| $ 641,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homeowners Property Damage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance |
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Years Ended December 31, |
|
|
|
|
| ||||||||||||||
Accident Year |
| 2008 |
| 2009 |
| 2010 |
| 2011 |
| 2012 |
| 2013 |
| 2014 |
| 2015 |
| 2016 |
| 2017 |
|
|
|
|
| (Unaudited) |
|
|
|
|
|
|
| ||||||||||||||
| 2008 |
| $ 11,751 |
| $ 19,164 |
| $ 20,665 |
| $ 22,481 |
| $ 22,514 |
| $ 22,531 |
| $ 22,552 |
| $ 22,552 |
| $ 22,552 |
| $ 22,553 |
|
|
|
| 2009 |
|
|
| 16,147 |
| 22,305 |
| 25,812 |
| 25,718 |
| 25,705 |
| 25,741 |
| 25,754 |
| 25,753 |
| 25,753 |
|
|
|
| 2010 |
|
|
|
|
| 25,761 |
| 37,447 |
| 38,790 |
| 39,110 |
| 39,145 |
| 39,203 |
| 39,235 |
| 39,235 |
|
|
|
| 2011 |
|
|
|
|
|
|
| 71,532 |
| 89,741 |
| 92,184 |
| 92,462 |
| 92,444 |
| 92,333 |
| 92,182 |
|
|
|
| 2012 |
|
|
|
|
|
|
|
|
| 30,801 |
| 40,681 |
| 41,960 |
| 41,737 |
| 41,782 |
| 41,789 |
|
|
|
| 2013 |
|
|
|
|
|
|
|
|
|
|
| 38,661 |
| 48,456 |
| 49,702 |
| 49,612 |
| 49,653 |
|
|
|
| 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
| 40,409 |
| 52,161 |
| 54,088 |
| 54,224 |
|
|
|
| 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 112,563 |
| 145,337 |
| 160,572 |
|
|
|
| 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 44,103 |
| 57,238 |
|
|
|
| 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 46,366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
| $ 589,565 |
|
|
|
|
|
|
|
|
|
|
|
| All outstanding liabilities before 2008, net of reinsurance |
| 257 |
|
|
| |||||||||
|
|
|
|
|
| Liabilities for claims and claim adjustment expenses, net of reinsurance |
| $ 51,746 |
|
|
| ||||||||||||
90
| | | | | | | | | | | | | | | | | | | | | |
Homeowners Property Damage | | | | | | | | | | | | | | ||||||||
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | | | | | | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
| | | | For the Years Ended December 31, | | | | ||||||||||||||
Accident Year | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | |
| | (Unaudited) | | | | | | ||||||||||||||
2013 | | $ 38,661 | | $ 48,456 | | $ 49,702 | | $ 49,612 | | $ 49,653 | | $ 49,620 | | $ 49,328 | | $ 49,327 | | $ 49,327 | | $ 49,328 | |
2014 | | | | 40,409 | | 52,161 | | 54,088 | | 54,224 | | 54,262 | | 54,274 | | 54,306 | | 54,305 | | 54,306 | |
2015 | | | | | | 112,563 | | 145,337 | | 160,572 | | 161,745 | | 161,773 | | 161,850 | | 161,783 | | 161,781 | |
2016 | | | | | | | | 44,103 | | 57,238 | | 59,155 | | 59,449 | | 59,403 | | 59,428 | | 59,493 | |
2017 | | | | | | | | | | 46,366 | | 64,401 | | 66,181 | | 66,892 | | 66,765 | | 66,826 | |
2018 | | | | | | | | | | | | 57,704 | | 70,959 | | 72,078 | | 73,119 | | 73,307 | |
2019 | | | | | | | | | | | | | | 49,121 | | 61,905 | | 63,536 | | 64,427 | |
2020 | | | | | | | | | | | | | | | | 50,304 | | 65,927 | | 68,706 | |
2021 | | | | | | | | | | | | | | | | | | 51,390 | | 67,998 | |
2022 | | | | | | | | | | | | | | | | | | | | 48,906 | |
| | | | | | | | | | | | | | | | | | Total | | $ 715,078 | |
| | | | | | | | | All outstanding liabilities before 2013, net of reinsurance | | 1,030 | | |||||||||
| | | | | | Liabilities for claims and claim adjustment expenses, net of reinsurance | | $ 39,226 | | ||||||||||||
The following is unaudited supplementary information about average historical claims duration as of December 31, 2016.2022.
90
| | | | | | | | | | | | | | | | | | | | |
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Unaudited) | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Years | | 1 | | 2 | | 3 | | 4 | | 5 | | 6 | | 7 | | 8 | | 9 | | 10 |
Private Passenger Automobile Liability | | 43.0% | | 32.8% | | 10.5% | | 6.4% | | 3.0% | | 1.7% | | 0.6% | | 0.3% | | 0.1% | | 0.1% |
Private Passenger Automobile Physical Damage | | 106.2% | | (4.3)% | | (2.4)% | | (0.3)% | | (0.1)% | | 0.0% | | 0.0% | | 0.0% | | 0.0% | | 0.0% |
Commercial Automobile Liability | | 26.2% | | 25.2% | | 12.2% | | 11.8% | | 7.1% | | 5.8% | | 3.0% | | 0.7% | | 1.2% | | 0.0% |
Commercial Automobile Physical Damage | | 94.4% | | 6.7% | | (2.1)% | | (0.4)% | | 0.0% | | 0.0% | | 0.0% | | 0.0% | | 0.0% | | 0.0% |
Homeowners Liability | | 5.8% | | 24.0% | | 15.5% | | 10.2% | | 11.0% | | 10.4% | | 3.2% | | 0.9% | | 0.1% | | 0.3% |
Homeowners Property Damage | | 71.6% | | 21.1% | | 4.6% | | 0.8% | | 0.0% | | 0.0% | | (0.1)% | | 0.0% | | 0.0% | | 0.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Unaudited) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years |
| 1 |
| 2 |
| 3 |
| 4 |
| 5 |
| 6 |
| 7 |
| 8 |
| 9 |
| 10 |
Private Passenger Automobile Liability |
| 43.8% |
| 31.2% |
| 10.4% |
| 6.0% |
| 3.2% |
| 1.7% |
| 0.5% |
| 0.1% |
| 0.0% |
| 0.0% |
Private Passenger Automobile Physical Damage |
| 106.0% |
| -4.2% |
| -2.1% |
| -0.3% |
| -0.1% |
| 0.0% |
| 0.0% |
| 0.0% |
| 0.0% |
| 0.0% |
Commercial Automobile Liability |
| 28.9% |
| 27.5% |
| 12.5% |
| 9.3% |
| 6.6% |
| 5.3% |
| 1.3% |
| 0.3% |
| 0.1% |
| 0.0% |
Commercial Automobile Physical Damage |
| 94.9% |
| 5.7% |
| -1.7% |
| -0.3% |
| 0.0% |
| -0.1% |
| 0.0% |
| 0.0% |
| 0.0% |
| 0.0% |
Homeowners Liability |
| 8.8% |
| 24.7% |
| 17.4% |
| 11.5% |
| 5.6% |
| 5.0% |
| 2.0% |
| 0.0% |
| 0.3% |
| 0.2% |
Homeowners Property Damage |
| 68.3% |
| 21.6% |
| 5.8% |
| 0.6% |
| 0.0% |
| 0.0% |
| 0.0% |
| 0.0% |
| 0.0% |
| 0.0% |
The reconciliation of the net incurred and paid claims development tables to the liability for claims and claim adjustment expenses in the consolidated balance sheets is as follows.
|
|
| ||
| | | ||
Reconciliation of the Disclosure of Incurred and Paid Claims Development to the Liability for Unpaid claims and Claim Adjustment Expenses | Reconciliation of the Disclosure of Incurred and Paid Claims Development to the Liability for Unpaid claims and Claim Adjustment Expenses | Reconciliation of the Disclosure of Incurred and Paid Claims Development to the Liability for Unpaid claims and Claim Adjustment Expenses | ||
|
|
| ||
|
| December 31, 2017 | ||
| | | ||
| | December 31, 2022 | ||
Net outstanding liabilities |
|
| | |
Private Passenger Automobile Liability | $ | 231,990 | $ | 176,810 |
Private Passenger Automobile Physical Damage |
| (3,395) | | (2,887) |
Commercial Automobile Liability |
| 80,018 | | 95,348 |
Commercial Automobile Physical Damage |
| 2,212 | | 3,189 |
Homeowners Liability |
| 31,945 | | 42,240 |
Homeowners Property Damage |
| 51,746 | | 39,226 |
Other Short-Duration Insurance Lines |
| 65,363 | | 72,813 |
Liabilities for unpaid claims and claim adjustment expenses, net of reinsurance | $ | 459,879 | $ | 426,739 |
|
|
| ||
| | | ||
Reinsurance recoverable on unpaid claims |
|
| | |
Private Passenger Automobile Liability | $ | 1,191 | $ | 120 |
Private Passenger Automobile Physical Damage |
| 4 | | - |
Commercial Automobile Liability |
| 68,111 | | 86,788 |
Commercial Automobile Physical Damage |
| 2,248 | | 2,836 |
Homeowners Liability |
| - | | - |
Homeowners Property Damage |
| 2,681 | | 3,270 |
Other Short-Duration Insurance Lines |
| 8,850 | | 380 |
Total reinsurance recoverable on unpaid claims | $ | 83,085 | $ | 93,394 |
|
|
| ||
| | | ||
Unallocated claims adjustment expenses |
| 31,090 | | 29,465 |
|
|
| ||
| | | ||
Total gross liability for unpaid claims and claim adjustment expenses | $ | 574,054 | $ | 549,598 |
Due to the nature of the risks that the Company underwrites and has historically underwritten, management does not believe that it has an exposure to asbestos or environmental pollution liabilities.
91
13. | Income Taxes |
A summary of the income tax expense (benefit) in the Consolidated Statementsconsolidated statements of Operationsoperations is shown below.
|
|
|
|
|
|
|
|
|
|
|
| Years Ended December 31, | |||||||
|
| 2017 |
| 2016 |
| 2015 | |||
Current Income Taxes: |
|
|
|
|
|
|
|
|
|
Federal |
| $ | 22,198 |
| $ | 26,927 |
| $ | (15,384) |
State |
|
| 30 |
|
| 89 |
|
| 40 |
|
|
| 22,228 |
|
| 27,016 |
|
| (15,344) |
Deferred Income Taxes: |
|
|
|
|
|
|
|
|
|
Federal |
|
| 2,085 |
|
| 1,681 |
|
| 552 |
State |
|
| — |
|
| — |
|
| — |
|
|
| 2,085 |
|
| 1,681 |
|
| 552 |
Total income tax expense (benefit) |
| $ | 24,313 |
| $ | 28,697 |
| $ | (14,792) |
| | | | | | | | | |
| | Years Ended December 31, | |||||||
| | 2022 | | 2021 | | 2020 | |||
Current Income Taxes: |
| |
|
| |
|
| |
|
Federal | | $ | 21,317 | | $ | 28,222 | | $ | 31,133 |
State | |
| 74 | |
| 15 | |
| 267 |
| |
| 21,391 | |
| 28,237 | |
| 31,400 |
Deferred Income Taxes: | | | | | | | | | |
Federal | |
| (8,371) | |
| 5,323 | |
| 5,159 |
State | |
| — | |
| — | |
| — |
| |
| (8,371) | |
| 5,323 | |
| 5,159 |
Total income tax expense | | $ | 13,020 | | $ | 33,560 | | $ | 36,559 |
The income tax (benefit) expense attributable to the consolidated results of operations is different from the amounts determined by multiplying income before federal income taxes by the statutory federal income tax rate. The sources of the difference and the tax effects of each were as follows for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
| Years Ended December 31, | |||||||
|
| 2017 |
| 2016 |
| 2015 | |||
Federal income tax expense (benefit), at statutory rate |
| $ | 30,345 |
| $ | 32,649 |
| $ | (10,025) |
Tax‑exempt investment income, net |
|
| (4,123) |
|
| (4,194) |
|
| (4,889) |
State taxes, net |
|
| 19 |
|
| 58 |
|
| 26 |
Nondeductible expenses |
|
| 237 |
|
| 202 |
|
| 233 |
Remeasurement of deferred tax liability upon enactment of the TCJA |
|
| (1,540) |
|
| — |
|
| — |
Tax windfall related to share-based stock compensation |
|
| (333) |
|
| — |
|
| — |
Other, net |
|
| (292) |
|
| (18) |
|
| (137) |
Total income tax expense (benefit) |
| $ | 24,313 |
| $ | 28,697 |
| $ | (14,792) |
| | | | | | | | | |
| | Years Ended December 31, | |||||||
| | 2022 | | 2021 | | 2020 | |||
Federal income tax expense at statutory rate |
| $ | 12,512 |
| $ | 34,496 |
| $ | 36,702 |
Investment income, net | |
| (559) | |
| (1,060) | |
| (1,394) |
State taxes, net | |
| 58 | |
| 11 | |
| 211 |
Nondeductible expenses | |
| 468 | |
| 613 | |
| 697 |
Tax related to share-based stock compensation | |
| 222 | |
| (101) | |
| (298) |
Other, net | |
| 319 | |
| (399) | |
| 641 |
Total income tax expense | | $ | 13,020 | | $ | 33,560 | | $ | 36,559 |
The deferred income tax asset (liability) represents the tax effects of temporary differences attributable to the Company’s consolidated federal tax return group. Its components were as shown in the following table for the periods indicated.
|
|
|
|
|
|
|
|
|
| Years Ended December 31, |
| ||||
|
| 2017 |
| 2016 |
| ||
Deferred tax assets: |
|
|
|
|
|
|
|
Discounting of loss reserves |
| $ | 3,361 |
| $ | 5,984 |
|
Discounting of unearned premium reserve |
|
| 17,239 |
|
| 28,286 |
|
Bad debt allowance |
|
| 289 |
|
| 502 |
|
Employee benefits |
|
| 3,499 |
|
| 7,995 |
|
Rent incentive |
|
| 64 |
|
| 238 |
|
Depreciation |
|
| 75 |
|
| 255 |
|
Total deferred tax assets before valuation allowance |
|
| 24,527 |
|
| 43,260 |
|
Valuation allowance for deferred tax assets |
|
| — |
|
| — |
|
Total deferred tax assets |
|
| 24,527 |
|
| 43,260 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
Deferred acquisition costs |
|
| (15,163) |
|
| (24,848) |
|
Investments |
|
| (2,421) |
|
| (3,469) |
|
Net unrealized gains on investments |
|
| (7,710) |
|
| (8,531) |
|
Software development costs |
|
| (1,648) |
|
| (2,479) |
|
Premium acquisition expenses |
|
| (502) |
|
| (850) |
|
Total deferred tax liabilities |
|
| (27,444) |
|
| (40,177) |
|
Net deferred tax asset (liability) |
| $ | (2,917) |
| $ | 3,083 |
|
| | | | | | | |
| | Years Ended December 31, |
| ||||
| | 2022 | | 2021 |
| ||
Deferred tax assets: |
| |
|
| |
| |
Discounting of loss reserves | | $ | 4,790 | | $ | 5,447 | |
Discounting of unearned premium reserve | |
| 17,546 | |
| 16,813 | |
Net unrealized losses on investments | | | 16,917 | | | — | |
Bad debt allowance | |
| 329 | |
| 430 | |
Employee benefits | |
| 4,506 | |
| 4,364 | |
Rent incentive | |
| 684 | |
| 797 | |
Total deferred tax assets before valuation allowance | |
| 44,772 | |
| 27,851 | |
Valuation allowance for deferred tax assets | |
| — | |
| — | |
Total deferred tax assets | |
| 44,772 | |
| 27,851 | |
Deferred tax liabilities: | | | | | | | |
Deferred acquisition costs | |
| (15,872) | |
| (15,335) | |
Investments | |
| (2,662) | |
| (10,319) | |
Net unrealized gains on investments | |
| — | |
| (11,025) | |
Loss reserve transition adjustment | |
| (831) | |
| (1,108) | |
Software development costs | |
| (2,913) | |
| (3,591) | |
Premium acquisition expenses | |
| (461) | |
| (380) | |
Depreciation | |
| (959) | |
| (1,333) | |
Total deferred tax liabilities | |
| (23,698) | |
| (43,091) | |
Net deferred tax assets (liability) | | $ | 21,074 | | $ | (15,240) | |
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The Company believes, based upon consideration of objective and verifiable evidence, including its historical positive earnings and its future expectations, that the Company’s taxable income in future years will be sufficient to realize all federal deferred tax assets.
The Company believes that the positions taken on its income tax returns for open tax years will be sustained upon examination by the Internal Revenue Service (“IRS”). Therefore, the Company has not recorded any liability for
92
uncertain tax positions under ASC 740, Income Taxes.
During the years ended December 31, 20172022 and December 31, 20162021 there were no material changes to the amount of the Company’s unrecognized tax benefits or to any assumptions regarding the amount of its ASC 740 liability.
As of December 31, 20172022 and December 31, 2016,2021, the Company had no unrecognized tax benefits, and none which if recognized would affect the effective tax rate. The Company does not currently anticipate significant changes in the amount of unrecognized income tax benefits during the next twelve months.
The Company records interest and penalties associated with audits as a component of income before income taxes. Penalties are recorded in underwriting, operating and other expenses, and interest expense is recorded in interest expenses in the Consolidated Statementsconsolidated statements of Operations.operations. The Company had no interest and penalties related to income taxes accrued as of December 31, 20172022 and 2016.2021.
The Company’s U.S. federal tax return for the years ended December 31, 2015, 2014 and 2013 respectively, were examined by the IRS. This examination relates to the refund claim for the 2015 Net Operating Loss that was carried back to prior years, which triggered a review by the Joint Committee on Taxation. The review was completed during 2017 and no adjustments were noted as part of the review. All tax years prior to 2014 are closed.
In the Company’s opinion, adequate tax liabilities have been established for all open years. However, the amount of these tax liabilities could be revised in the near term if estimates of the Company’s ultimate liability are revised.
On December 22, 2017, the TCJA was enacted, which significantly amends the Internal Revenue Code of 1986. The TCJA, among other things, reduces the corporate All tax rate from a statutory rate of 35% to 21%, imposes additional limitations on net operating losses and executive compensation, allows for the full expensing of certain capital expenditures and enacts other changes impacting the insurance industry. Tax related changes are recorded through the Statement of Operations for the year ended December 31, 2017. The December 31, 2017 net deferred tax liability has been measured at the 21% tax rate.
The TCJA modified the provisions applicable to the determination of the tax basis of unpaid loss reserves. These modifications impact the payment pattern and applicable interest rate. The TCJA instructed the Treasury to provide discount factors and other guidance necessary to determine the necessary transition adjustment. This information has not been released; accordingly, we have applied the law existingyears prior to the enactment of the TCJA. These provisions would have no effect on the net deferred tax liability as of December 31, 2017 or the total tax expense for the year ended December 31, 2017. 2019 are closed.
SEC Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (which we refer to as SAB 118) describes three scenarios associated with a company’s status of accounting for income tax reform. Under the SAB 118 guidance, we have determined that we are able to make reasonable estimates for certain effects of tax reform. As of the date of this Annual Report on Form 10-K, we are continuing to evaluate the accounting impactions of the TCJA as we continue to assemble and analyze all the information required to prepare and analyze these effects and await additional guidance from the U.S. Treasury Department, IRS or other standard-setting bodies. Additionally, we continue to analyze other information and regulatory guidance and accordingly we may record additional provisional amounts or adjustments to provisional amounts in future periods.
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12.Share Repurchase Program
14. | Share Repurchase Program |
On August 3, 2007, the Board of Directors approved a share repurchase program of up to $30,000 of the Company’s outstanding common shares. As of December 31, 2017, theThe Board of Directors had cumulatively authorized increases to the existing share repurchase program of up to $150,000$200,000 of its outstanding common shares. Under the program, the Company may repurchase shares of its common stock for cash in public or private transactions, in the open market or otherwise. The timing of such repurchases and actual number of shares repurchased will depend on a variety of factors including price, market conditions and applicable regulatory and corporate requirements. The program does not require the Company to repurchase any specific number of shares and it may be modified, suspended or terminated at any time without prior notice. No share purchases were made by
During the year ended December 31, 2022, the Company purchased 170,904 shares on the open market under the program duringat a cost of $14,603. During the yearsyear ended December 31, 2017 and2021, the Company purchased 139,405 shares on the open market under the program at a cost of $11,563. During the year ended December 31, 2016.2020, the Company purchased 551,598 shares on the open market under the program at a cost of $39,999. As of December 31, 2017,2022, the Company had purchased 2,279,5703,141,477 shares on the open market at cost of $150,000. As of December 31, 2021, the Company had purchased 2,970,573 shares on the open market at a cost of $83,835.$135,397.
13.Statutory Net Income and Surplus
15. | Statutory Net Income and Surplus |
Statutory Accounting Practices
The Company’s insurance company subsidiaries, domiciled in the Commonwealth of Massachusetts, prepare statutory financial statements in accordance with the accounting practices prescribed or permitted by the Division. Prescribed statutory accounting practices are those practices that are incorporated directly or by reference in state laws, regulations, and general administrative rules applicable to all insurance enterprises domiciled in a particular state. Permitted statutory accounting practices include practices not prescribed by the Division, but allowed by the Division. Statutory net income was $57,982,$66,197, $97,169, and $57,202$121,446 for the years ended December 31, 2017,2022, 2021, and 20162020, respectively. Statutory net loss of the Company’s insurance company subsidiaries was $12,209 for the year ended December 31, 2015. Statutory capital and surplus of the Company’s insurance subsidiaries was $617,577,$782,200 and $604,813$826,979 at December 31, 20172022 and 2016,2021, respectively.
93
Dividends
The Insurance Subsidiaries are subject to various regulatory restrictions that limit the maximum amount of dividends available to be paid to their parent without prior approval of the Commonwealth of Massachusetts Commissioner of Insurance (the “Commissioner”). Massachusetts statute limits the dividends an insurer may pay in any twelve month period, without the prior permission of the Commissioner, to the greater of (i) 10% of the insurer’s surplus as of the preceding December 31 or (ii) the insurer’s net income for the twelve‑twelve- month period ending the preceding December 31, in each case determined in accordance with statutory accounting practices. Our insurance company subsidiaries may not declare an “extraordinary dividend” (defined as any dividend or distribution that, together with other distributions made within the preceding twelve months, exceeds the limits established by Massachusetts statute) until thirty days after the Commissioner has received notice of the intended dividend and has not objected. As historically administered by the Commissioner, this provision requires the Commissioner’s prior approval of an extraordinary dividend. Under Massachusetts law, an insurer may pay cash dividends only from its unassigned funds, also known as earned surplus, and the insurer’s remaining surplus must be both reasonable in relation to its outstanding liabilities and adequate to its financial needs. At December 31, 2017,2022, the statutory capital and surplus of Safety Insurance was $617,577$782,200 and its net income for 20172022 was $57,982.$66,197. As a result, a maximum of $61,758$78,220 is available in 20182023 for such dividends without prior approval of the Commissioner. During the year ended December 31, 2017,2022, Safety Insurance recorded dividends of $41,826.$94,260. As result of this Massachusetts statute, the Insurance Subsidiaries had restricted net assets in the amount of $555,819$703,980 at December 31, 2017.2022.
Risk‑BasedRisk-Based Capital Requirements
The NAIC has adopted a formula and model law to implement risk‑basedrisk-based capital requirements for most property and casualty insurance companies, which are designed to determine minimum capital requirements and to raise the level of protection that statutory surplus provides for policyholder obligations. Under Massachusetts law, insurers having less total adjusted capital than that required by the risk‑basedrisk-based capital calculation will be subject to varying
94
degrees of regulatory action, depending on the level of capital inadequacy. The risk‑basedrisk-based capital law provides for four levels of regulatory action. The extent of regulatory intervention and action increases as the level of total adjusted capital to risk‑basedrisk-based capital falls. As of December 31, 2017,2022, the Insurance Subsidiaries had total adjusted capital of $617,577,$782,200, which is in excess of amounts requiring company or regulatory action at any prescribed risk‑basedrisk-based capital action level. Minimum statutory capital and surplus, or company action level risk‑basedrisk-based capital, was $171,988$200,806 at December 31, 2017.2022.
16. | Fair Value of Financial Instruments |
14.Fair Value of Financial Instruments
ASC 820, Fair Value Measurements and Disclosure provides a revised definition of fair value, establishes a framework for measuring fair value and expands financial statement disclosure requirements for fair value information. Under ASC 820, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants (an exit price). ASC 820 establishes a fair value hierarchy that distinguishes between inputs based on market data from independent sources (“observable inputs”) and a reporting entity’s internal assumptions based upon the best information available when external market data is limited or unavailable (“unobservable inputs”). The fair value hierarchy in ASC 820 prioritizes fair value measurements into three levels based on the nature of the inputs as follows:
Level 1 — Valuations based on quoted prices in active markets for identical assets and liabilities;
Level 2 — Valuations based on observable inputs that do not meet the criteria for Level 1, including quoted prices in inactive markets and quoted prices in active markets for similar, but not identical instruments; and
Level 3 — Valuations based on unobservable inputs.
Fair values for the Company’s fixed maturity securities are based on prices provided by its custodian bank and its investment managers. Both the Company’s custodian bank and investment managers use a variety of independent, nationally recognized pricing services to determine market valuations. If the pricing service cannot provide fair value determinations, the Company obtains non-binding price quotes from broker-dealers. A minimum of two quoted prices is
94
obtained for the majority of the Company’s available-for-sale fixed maturity securities in its investment portfolio. The Company’s custodian bank isCompany uses a third-party pricing service as its primary provider of quoted prices from third-party pricing services and broker-dealers. To provide reasonable assurance of the validity of each price or quote, a secondary third-party pricing service or broker-dealer quote is obtained from the Company’s custodian or investment managers. An examination of the pricing data is then performed for each security. If the variance between the primary and secondary price quotes for a security is within an accepted tolerance level, the quoted price obtained from the Company’s custodian bankprimary source is used in the financial statements for the security. If the variance between the primary and secondary price quotes exceeds an accepted tolerance level, the Company obtains a quote from an alternative source, if possible, and documents and resolves any differences between the pricing sources. In addition, the Company may request that its investment managers and its traders provide input as to which vendor is providing prices that its traders believe are reflective of fair value for the security. Following this process, the Company may decide to value the security in its financial statements using the secondary or alternative source if it believes that pricing is more reflective of the security’s value than the primary pricing provided by its custodian bank. The Company analyzes market valuations received to verify reasonableness, to understand the key assumptions used and their sources, and to determine an appropriate ASC 820 fair value hierarchy level based upon trading activity and the observability of market inputs. Based on this evaluation and investment class analysis, each price is classified into Level 1, 2 or 3.
Fair values of instruments are based on (i) quoted prices in active markets for identical assets (Level 1), (ii) quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which all significant inputs are observable in active markets (Level 2) or (iii) valuations derived from valuation techniques in which one or more significant inputs are unobservable in the marketplace (Level 3).
The Company’s Level 1 securities consist of equity securities whose values are based on quoted prices in active markets for identical assets. The Company’s Level 2 securities are comprised of available-for-sale fixed maturity
95
securities whose fair value was determined using observable market inputs. The Company’s Level 3 security consists of an investment in the Federal Home Loan Bank of Boston related to Safety Insurance Company’s membership stock, which is not redeemable in a short-term time frame. Fair values for securities for which quoted market prices were unavailable were estimated based upon reference to observable inputs such as benchmark interest rates, market comparables, and other relevant inputs. Investments valued using these inputs include U.S. Treasury securities, obligations of states and political subdivisions, corporate and other securities, commercial and residential mortgage-backed securities, and other asset-backed securities. Inputs into the fair value application that are utilized by asset class include but are not limited to:
| Obligations of states and political subdivisions: overall credit quality, including assessments of market sectors and the level and variability of sources of payment such as general obligation, revenue or lease; credit support such as insurance, state or local economic and political base, prefunded and escrowed to maturity covenants. |
| Corporate and |
| Residential mortgage-backed securities: U.S. agency pass-throughs, collateralized mortgage obligations (“CMOs”), non U.S. agency |
| Commercial mortgage-backed securities: overall credit quality, including assessments of the level and variability of credit support and collateral type such as office, retail, or lodging, predictability of cash flows for the deal structure, prevailing economic market conditions. |
95
| Other asset-backed securities: overall credit quality, estimates of prepayment speeds based upon historical trends and characteristics of underlying loans, including assessments of the level and variability of collateral, revenue generating agreements, area licenses agreements, product sourcing agreements and equipment and property leases. |
| FHLB-Boston: value is equal to the cost of the member stock purchased. |
In order to ensure the fair value determination is representative of an exit price (consistent with ASC 820), the Company’s procedures for validating quotes or prices obtained from third parties include, but are not limited to, obtaining a minimum of two price quotes for each fixed maturity security if possible, as discussed above, the periodic testing of sales activity to determine if there are any significant differences between the market price used to value the security as of the balance sheet date and the sales price of the security for sales that occurred around the balance sheet date, and the periodic review of reports provided by its external investment manager regarding those securities with ratings changes and securities placed on its “Watch List.” In addition, valuation techniques utilized by pricing services and prices obtained from external sources are reviewed by the Company and itsCompany’s external investment manager, whose investment professionals are familiar with the securities being priced and the markets in which they trade, to ensure the fair value determination is representative of an exit price (consistent with ASC 820).price.
All unadjusted estimates of fair value for our fixed maturities priced by the pricing services as described above are included in the amounts disclosed in Level 2. With the exception of the FHLB-Boston security, which is categorized as a Level 3 security, the Company’s entire available-for-sale portfolio was priced based upon quoted market prices or other observable inputs as of December 31, 2017.2022. There were no significant changes to the valuation process during the year ended December 31, 2017.2022. As of December 31, 20172022 and December 31, 2016,2021, no quotes or prices obtained were adjusted by management. All broker quotes obtained were non-binding.
At December 31, 20172022 and December 31, 2016,2021, investments in fixed maturities and equity securities classified
96
as available-for-sale had a fair value which equaled carrying value of $1,283,893$1,050,155 and $1,259,364,$1,218,279, respectively. At December 31, 20172022 and December 31, 2016, we2021 the Company held no short-term investments. The carrying values of cash and cash equivalents and investment income accrued approximated fair value.
The following tables summarize the Company’s total fair value measurements for available‑for‑sale investments for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of December 31, 2017 | ||||||||||
|
| Total |
| Level 1 Inputs |
| Level 2 Inputs |
| Level 3 Inputs | ||||
U.S. Treasury securities |
| $ | 1,791 |
| $ | — |
| $ | 1,791 |
| $ | — |
Obligations of states and political subdivisions |
|
| 403,084 |
|
| — |
|
| 403,084 |
|
| — |
Residential mortgage-backed securities |
|
| 222,766 |
|
| — |
|
| 222,766 |
|
| — |
Commercial mortgage-backed securities |
|
| 39,369 |
|
| — |
|
| 39,369 |
|
| — |
Other asset-backed securities |
|
| 72,613 |
|
| — |
|
| 72,613 |
|
| — |
Corporate and other securities |
|
| 432,403 |
|
| — |
|
| 432,403 |
|
| — |
Equity securities |
|
| 87,737 |
|
| 87,057 |
|
| — |
|
| 680 |
Total investment securities |
| $ | 1,259,763 |
| $ | 87,057 |
| $ | 1,172,026 |
| $ | 680 |
| | | | | | | | | | | | |
| | As of December 31, 2022 | ||||||||||
|
| Total |
| Level 1 Inputs |
| Level 2 Inputs |
| Level 3 Inputs | ||||
U.S. Treasury securities | | $ | 1,669 | | $ | — | | $ | 1,669 | | $ | — |
Obligations of states and political subdivisions | |
| 54,069 | |
| — | |
| 54,069 | |
| — |
Residential mortgage-backed securities | |
| 234,502 | |
| — | |
| 234,502 | |
| — |
Commercial mortgage-backed securities | |
| 139,931 | |
| — | |
| 139,931 | |
| — |
Other asset-backed securities | |
| 68,731 | |
| — | |
| 68,731 | |
| — |
Corporate and other securities | |
| 551,253 | |
| — | |
| 551,253 | |
| — |
Equity securities | |
| 199,705 | |
| 197,450 | |
| — | |
| 2,255 |
Total investment securities | | $ | 1,249,860 | | $ | 197,450 | | $ | 1,050,155 | | $ | 2,255 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| As of December 31, 2016 | ||||||||||||||||||||||
|
| Total |
| Level 1 Inputs |
| Level 2 Inputs |
| Level 3 Inputs | ||||||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | As of December 31, 2021 | ||||||||||||||||||||||
|
| Total |
| Level 1 Inputs |
| Level 2 Inputs |
| Level 3 Inputs | ||||||||||||||||
U.S. Treasury securities |
| $ | 302 |
| $ | — |
| $ | 302 |
| $ | — | | $ | 324 | | $ | — | | $ | 324 | | $ | — |
Obligations of states and political subdivisions |
|
| 390,433 |
|
| — |
|
| 390,433 |
|
| — | |
| 116,302 | |
| — | |
| 116,302 | |
| — |
Residential mortgage-backed securities |
|
| 252,631 |
|
| — |
|
| 252,631 |
|
| — | |
| 241,464 | |
| — | |
| 241,464 | |
| — |
Commercial mortgage-backed securities |
|
| 35,454 |
|
| — |
|
| 35,454 |
|
| — | |
| 150,883 | |
| — | |
| 150,883 | |
| — |
Other asset-backed securities |
|
| 70,410 |
|
| — |
|
| 70,410 |
|
| — | |
| 83,596 | |
| — | |
| 83,596 | |
| — |
Corporate and other securities |
|
| 405,039 |
|
| — |
|
| 405,039 |
|
| — | |
| 625,710 | |
| — | |
| 625,710 | |
| — |
Equity securities |
|
| 85,134 |
|
| 84,456 |
|
| — |
|
| 678 | |
| 226,375 | |
| 224,677 | |
| — | |
| 1,698 |
Total investment securities |
| $ | 1,239,403 |
| $ | 84,456 |
| $ | 1,154,269 |
| $ | 678 | | $ | 1,444,654 | | $ | 224,677 | | $ | 1,218,279 | | $ | 1,698 |
There were no transfers between Level 1 and Level 2 during the years ended December 31, 20172022 or 2016.2021.
96
The following tables summarize the changes in the Company’s Level 3 fair value securities for the periods indicated.
|
|
|
|
|
|
|
|
|
| |||||||||
|
| Years Ended December 31, | ||||||||||||||||
|
| 2017 |
| 2016 |
| 2015 | ||||||||||||
| | | | | | | | | | |||||||||
| | Years Ended December 31, | ||||||||||||||||
|
| 2022 |
| 2021 |
| 2020 | ||||||||||||
Balance at beginning of period |
| $ | 678 |
| $ | 547 |
| $ | 505 | | $ | 1,698 | | $ | 1,698 | | $ | 516 |
Net gains and losses included in earnings |
|
| — |
|
| — |
|
| — | |
| — | |
| — | |
| — |
Net gains included in other comprehensive income |
|
| — |
|
| — |
|
| — | |
| — | |
| — | |
| — |
Purchases |
|
| 2 |
|
| 131 |
|
| 42 | |
| 557 | |
| — | |
| 1,182 |
Sales |
|
| — |
|
| — |
|
| — | | | — | | | — | | | — |
Transfers into Level 3 |
|
| — |
|
| — |
|
| — | |
| — | |
| — | |
| — |
Transfers out of Level 3 |
|
| — |
|
| — |
|
| — | |
| — | |
| — | |
| — |
Balance at end of period |
| $ | 680 |
| $ | 678 |
| $ | 547 | | $ | 2,255 | | $ | 1,698 | | $ | 1,698 |
Transfers in and out of Level 3 are attributable to changes in the ability to observe significant inputs in determining fair value exit pricing. As noted in the table above, no transfers were made in or out of Level 3 during 2017, 20162022, 2021 and 2015.2020. The Company held one Level 3 securitiessecurity at December 31, 2017.2022.
As of December 31, 20172022 and December 31, 2016,2021, there were approximately $24,130$40,450 and $19,961$38,570 in a real estate investment trust (“REIT”).REIT and is included in equity securities in the consolidated balance sheets. The REIT is excluded from the fair value hierarchy because the fair value is recorded using the net asset value per share practical expedient. The net asset value per share of this REIT is derived from member ownership in the capital venture to which a proportionate share of independently appraised net assets is attributed. The fair value was determined using the trust’s net asset value obtained from its audited financial statements. The Company is required to submit a request to the REIT 45 days before a quarter end to dispose of the security.
97
15.Quarterly Results of Operations (Unaudited)
An unaudited summary of the Company’s 2017 and 2016 quarterly performance, and audited annual performance, is as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year ended December 31, 2017 | |||||||||||||
|
| First |
| Second |
| Third |
| Fourth |
| Total | |||||
|
| Quarter |
| Quarter |
| Quarter |
| Quarter |
| Year | |||||
Total revenue |
| $ | 204,770 |
| $ | 208,249 |
| $ | 212,529 |
| $ | 213,565 |
| $ | 839,113 |
Net income |
|
| 12,019 |
|
| 21,105 |
|
| 17,954 |
|
| 11,309 |
|
| 62,387 |
Earnings per weighted average common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 0.80 |
|
| 1.40 |
|
| 1.19 |
|
| 0.73 |
|
| 4.13 |
Diluted |
|
| 0.79 |
|
| 1.39 |
|
| 1.18 |
|
| 0.72 |
|
| 4.10 |
Cash dividends paid per common share |
|
| 0.70 |
|
| 0.70 |
|
| 0.80 |
|
| 0.80 |
|
| 3.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year ended December 31, 2016 | |||||||||||||
|
| First |
| Second |
| Third |
| Fourth |
| Total | |||||
|
| Quarter |
| Quarter |
| Quarter |
| Quarter |
| Year | |||||
Total revenue |
| $ | 199,829 |
| $ | 202,950 |
| $ | 210,085 |
| $ | 206,958 |
| $ | 819,822 |
Net (loss) income |
|
| 12,670 |
|
| 21,365 |
|
| 18,597 |
|
| 11,953 |
|
| 64,585 |
Earnings per weighted average common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 0.84 |
|
| 1.42 |
|
| 1.24 |
|
| 0.79 |
|
| 4.29 |
Diluted |
|
| 0.84 |
|
| 1.41 |
|
| 1.23 |
|
| 0.79 |
|
| 4.27 |
Cash dividends paid per common share |
|
| 0.70 |
|
| 0.70 |
|
| 0.70 |
|
| 0.70 |
|
| 2.80 |
16.Related Party Transactions
Mr. A. Richard Caputo, Jr., a member of the Company’s Board of Directors and Chairman of its Investment Committee, until his resignation in February 2017, is a principal of The Jordan Company, LP (“Jordan”). In 2012, the Company participated as a lender in two loans made by syndicates of lenders to a portfolio company in which funds managed by Jordan are controlling or a significant investor. The first loan, made to Vantage Specialties, Inc., was disposed of in 2016. The second loan, made to ARCAS Automotive (formerly known as Sequa Auto), was disposed of in 2015. The Company made the loans on the same terms as the other lenders participating in the syndicate. The loans were subject to the approval of the Company’s full Investment Committee.
17.Subsequent Events
17. | Subsequent Events |
The Company has evaluated subsequent events for recognition or disclosure in the consolidated financial statements on Form 10‑K10-K filed herewith and no events have occurred that require recognition or disclosure.
9897
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.On June 1, 2021, Deloitte and Touche LLP (“Deloitte”) was engaged as the new independent registered public
accounting firm of Safety to perform independent audit services for the Company for the fiscal year ending December 31, 2021. Deloitte’s engagement was approved by the Audit Committee of the Board. The appointment of Deloitte was a result of a competitive request for proposal process undertaken by the Audit Committee.
PricewaterhouseCoopers LLP’s (“PwC”) audit report on the Company’s consolidated financial statements for the fiscal year ended December 31, 2020 did not contain an adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles.
During the fiscal year ended December 31, 2020, there were (i) no disagreements (as that term is defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) between the Company and PwC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of PwC would have caused PwC to make reference thereto in its reports on the consolidated financial statements of the Company for such years, and (ii) no reportable events (as that term is defined in Item 304(a)(1)(v) of Regulation S-K).
During the fiscal year ended December 31, 2020, neither the Company, nor any party on behalf of the Company, consulted with Deloitte with respect to either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered with respect to the Company’s consolidated financial statements, and no written report or oral advice was provided to the Company by Deloitte that was an important factor considered by the Company in reaching its decision as to any accounting, auditing or financial reporting issue, or (ii) any matter that was subject to any disagreement (as that term is defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) or a reportable event (as that term is defined in Item 304(a)(1)(v) of Regulation S-K).
ITEM 9A. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as[as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended [the "Exchange Act"(the “Exchange Act”)]) as of the end of the period covered by this report. Based on that evaluation, our CEO and CFO have concluded that our disclosure controls and procedures are adequate and effective and ensure that all information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC'sSEC’s rules and that information required to be disclosed in such reports is accumulated and communicated to management, including our Chief Executive OfficerCEO and Chief Financial Officer,CFO, as appropriate, to allow timely decisions regarding required disclosures.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our
98
evaluation under the framework in Internal Control—Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective as of December 31, 2017. 2022.
PricewaterhouseCoopersDeloitte & Touche LLP, the Company's independent registered public accounting firm, has audited the effectiveness of Safety Insurance Group, Inc.'s internal control over financial reporting as of December 31, 2017,2022, as stated in their report which is included herein.
Changes in Internal Control over Financial Reporting
ThereDuring the eleven months ended December 1, 2022, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management’s Annual Report on Internal Control Over Financial Reporting and the Report of the Independent Registered Public Accounting Firm are set forth in Item 8. In accordance with guidance issued by the Securities and Exchange Commission, the Company may exclude acquisitions from management’s assessment of the effectiveness of internal control over financial reporting for the first year in which the acquisition occurred. The Company’s management has excluded the assessment of internal controls of SNIA, which was acquired on December 1, 2022, and further discussed in Note 1, Basis of Presentation. As December 31, 2022, SNIA accounted for an immaterial amount of consolidated assets and revenue.
Other than the matter described above, there have been no changes in our internal control over financial reporting identified in connection with the evaluation required by Exchange Act Rules 13a-15 and 15d-15 that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
99
The Company had no information required to be disclosed on a Form 8-K during the fourth fiscal quarter of 2021 that has not already been reported.
The following disclosures relate to actions taken by the Board of Directors of the Company (the "Board"), the Compensation Committee of the Board and the Board of Directors of Safety Insurance Company and would otherwise have been filed during the first fiscal quarter of 20172023 on a Form 8-K.
| On February |
| On February |
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not Applicable
100
Within 120 days after the close of its fiscal year, the Company intends to file with the Securities and Exchange Commission a definitive proxy statement pursuant to Regulation 14A of the Securities Exchange Act of 1934 as amended, which will include the matters required by these items.
(a)The following documents are filed as a part of this report:
1.Financial Statements: The Consolidated Financial Statements for the year ended December 31, 20172022 are contained herein as listed in the Index to Consolidated Financial Statements.
2.Financial Statement Schedules: The Financial Statement Schedules are contained herein as listed in the Index to Financial Statement Schedules.
3.Exhibits: The exhibits are contained herein as listed in the Index to Exhibits.
101
SAFETY INSURANCE GROUP, INC.
INDEX TO FINANCIAL STATEMENT SCHEDULES
| | |
Schedules | | Page |
| |
|
| ||
Summary of Investments – Other than Investments in Related Parties as of December 31, | 103 | |
| | |
104 | ||
| | |
106 | ||
| | |
Reinsurance for the years ended December 31, | 107 | |
| | |
108 | ||
| | |
109 |
102
Safety Insurance Group, Inc.
Summary of Investments—Investments—Other than Investments in Related Parties
Schedule I
At December 31, 20172022
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
| Amount at |
| |||||||||||
|
|
|
|
|
|
|
| which shown |
| |||||||||||
|
| Cost or |
| Estimated |
| in the Balance |
| |||||||||||||
|
| Amortized Cost |
| Fair Value |
| Sheet |
| |||||||||||||
| | | | | | | | | | | ||||||||||
|
| | |
| | |
| Amount at |
| |||||||||||
| | | | | | | | which shown |
| |||||||||||
| | Cost or | | Estimated | | in the Balance |
| |||||||||||||
| | Amortized Cost | | Fair Value | | Sheet |
| |||||||||||||
Fixed maturities: |
|
|
|
|
|
|
|
|
|
| | | | | | | | | | |
U.S. government and government agencies and authorities |
| $ | 225,066 |
| $ | 224,557 |
| $ | 224,557 |
| | $ | 261,703 | | $ | 236,171 | ��� | $ | 236,171 | |
Obligations of states and political subdivisions |
|
| 391,806 |
|
| 403,084 |
|
| 403,084 |
| |
| 57,319 | |
| 54,069 | |
| 54,069 | |
Corporate and other securities |
|
| 539,825 |
|
| 544,385 |
|
| 544,385 |
| |
| 833,757 | |
| 759,915 | |
| 759,915 | |
Total fixed maturities |
|
| 1,156,697 |
|
| 1,172,026 |
|
| 1,172,026 |
| |
| 1,152,779 | |
| 1,050,155 | |
| 1,050,155 | |
Equity securities: |
|
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Common stocks: |
|
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Industrial, miscellaneous and all other |
|
| 90,481 |
|
| 111,867 |
|
| 111,867 |
| |
| 231,444 | |
| 240,155 | |
| 240,155 | |
Total equity securities |
|
| 90,481 |
|
| 111,867 |
|
| 111,867 |
| |
| 231,444 | |
| 240,155 | |
| 240,155 | |
Other invested assets |
|
| 23,162 |
|
| 23,162 |
|
| 23,162 |
| |
| 112,850 | |
| 112,850 | |
| 112,850 | |
Total investments |
| $ | 1,270,340 |
| $ | 1,307,055 |
| $ | 1,307,055 |
| | $ | 1,497,073 | | $ | 1,403,160 | | $ | 1,403,160 | |
| (1) | Other invested assets are accounted for under the equity method which approximates fair value. |
103
Safety Insurance Group, Inc.
Condensed Financial Information of the Registrant
Condensed Balance Sheets
Schedule II
(Dollars in thousands)
| | | | | | |
| | Years Ended December 31, | ||||
| | 2022 | | 2021 | ||
Assets |
| |
|
| |
|
Investments in consolidated affiliates | | $ | 813,916 | | $ | 929,136 |
Other | |
| 9 | |
| 24 |
Total assets | | $ | 813,925 | | $ | 929,160 |
Liabilities | | | | | | |
Accounts payable and other liabilities | | $ | 1,926 | | $ | 1,987 |
Total liabilities | |
| 1,926 | |
| 1,987 |
Shareholders’ equity | |
| 811,999 | |
| 927,173 |
Total liabilities and shareholders’ equity | | $ | 813,925 | | $ | 929,160 |
The condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto.
Safety Insurance Group, Inc.
Condensed Financial Information of the Registrant
Condensed Balance Sheets
Schedule II
(Dollars in thousands)
|
|
|
|
|
|
|
|
| Years Ended December 31, | ||||
|
| 2017 |
| 2016 | ||
Assets |
|
|
|
|
|
|
Investments in consolidated affiliates |
| $ | 702,661 |
| $ | 672,102 |
Other |
|
| 9 |
|
| 24 |
Total assets |
| $ | 702,670 |
| $ | 672,126 |
Liabilities |
|
|
|
|
|
|
Accounts payable and other liabilities |
| $ | 1,654 |
| $ | 1,400 |
Total liabilities |
|
| 1,654 |
|
| 1,400 |
Shareholders’ equity |
|
| 701,016 |
|
| 670,726 |
Total liabilities and shareholders’ equity |
| $ | 702,670 |
| $ | 672,126 |
Safety Insurance Group, Inc.
Condensed Financial Information of the Registrant
Condensed Statements of Operations and Comprehensive (Loss) Income
Schedule II
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
| |||||||||
|
| Years Ended December 31, | ||||||||||||||||
|
| 2017 |
| 2016 |
| 2015 | ||||||||||||
| | | | | | | | | | |||||||||
| | Years Ended December 31, | ||||||||||||||||
| | 2022 | | 2021 | | 2020 | ||||||||||||
Revenues |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
Expenses |
|
| 1,494 |
|
| 1,406 |
|
| 1,230 | |
| 3,255 | |
| 1,755 | |
| 1,833 |
Net loss |
|
| (1,494) |
|
| (1,406) |
|
| (1,230) | |
| (3,255) | |
| (1,755) | |
| (1,833) |
Earnings from consolidated subsidiaries |
|
| 63,881 |
|
| 65,991 |
|
| (12,623) | |
| 49,816 | |
| 132,465 | |
| 140,044 |
Net income (loss) |
|
| 62,387 |
|
| 64,585 |
|
| (13,853) | |||||||||
Other net comprehensive income, net of taxes |
|
| 8,426 |
|
| (621) |
|
| (12,251) | |||||||||
Comprehensive net income (loss) |
| $ | 70,813 |
| $ | 63,964 |
| $ | (26,104) | |||||||||
Net income | |
| 46,561 | |
| 130,710 | |
| 138,211 | |||||||||
Other comprehensive (loss) income, net of tax | |
| (105,117) | |
| (28,948) | |
| 25,337 | |||||||||
Comprehensive (loss) income | | $ | (58,556) | | $ | 101,762 | | $ | 163,548 | |||||||||
The condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto.
104
Safety Insurance Group, Inc.
Condensed Financial Information of the Registrant
Condensed Statements of Cash Flows
Schedule II
(Dollars in thousands)
| | | | | | | | | |
| | Years Ended December 31, | |||||||
| | 2022 | | 2021 | | 2020 | |||
Net income |
| $ | 46,561 |
| $ | 130,710 |
| $ | 138,211 |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | |
Earnings from consolidated subsidiaries | |
| (49,816) | |
| (132,465) | |
| (140,044) |
Dividends received from consolidated subsidiaries(1) | |
| 94,260 | |
| 49,488 | |
| 89,156 |
Amortization of restricted stock expense | |
| 6,022 | |
| 6,304 | |
| 7,248 |
Changes in assets and liabilities: | | | | | | | | | |
Intercompany receivable / payable | | | (11,376) | | | 11,821 | | | (93) |
Other assets | |
| 15 | |
| 15 | |
| 15 |
Accounts payable and accrued liabilities | |
| (75) | |
| (302) | |
| 81 |
Net cash provided by operating activities | |
| 85,591 | |
| 65,571 | |
| 94,574 |
| | | | | | | | | |
Contributed capital | | | (17,950) | | | — | | | — |
Net cash provided by investing activities | | | (17,950) | |
| — | |
| — |
| | | | | | | | | |
Dividends paid | |
| (53,038) | |
| (54,008) | |
| (54,575) |
Acquisition of treasury stock | |
| (14,603) | |
| (11,563) | |
| (39,999) |
Net cash used for financing activities | |
| (67,641) | |
| (65,571) | |
| (94,574) |
| | | | | | | | | |
Net increase in cash and cash equivalents | |
| — | |
| — | |
| — |
Cash and cash equivalents, beginning of year | |
| — | |
| — | |
| — |
Cash and cash equivalents, end of year | | $ | — | | $ | — | | $ | — |
|
|
|
|
|
|
|
|
|
|
|
| Years Ended December 31, | |||||||
|
| 2017 |
| 2016 |
| 2015 | |||
Net income (loss) |
| $ | 62,387 |
| $ | 64,585 |
| $ | (13,853) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
(Earnings) loss from consolidated subsidiaries |
|
| (63,881) |
|
| (65,991) |
|
| 12,623 |
Dividends received from consolidated subsidiaries(1) |
|
| 41,826 |
|
| 39,156 |
|
| 39,440 |
Amortization of restricted stock expense |
|
| 5,367 |
|
| 4,312 |
|
| 3,515 |
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
Other assets |
|
| 15 |
|
| 63 |
|
| (33) |
Accounts payable and accrued liabilities |
|
| (254) |
|
| (111) |
|
| 5 |
Net cash provided by operating activities |
|
| 45,460 |
|
| 42,014 |
|
| 41,697 |
Proceeds from exercise of stock options |
|
| — |
|
| 257 |
|
| 278 |
Excess tax benefit from stock options exercised |
|
| — |
|
| (6) |
|
| 1 |
Dividends paid |
|
| (45,460) |
|
| (42,265) |
|
| (41,976) |
Acquisition of treasury stock |
|
| — |
|
| — |
|
| — |
Net cash used for financing activities |
|
| (45,460) |
|
| (42,014) |
|
| (41,697) |
Net increase in cash and cash equivalents |
|
| — |
|
| — |
|
| — |
Cash and cash equivalents, beginning of year |
|
| — |
|
| — |
|
| — |
Cash and cash equivalents, end of year |
| $ | — |
| $ | — |
| $ | — |
(1)
| (1) | No portion of the dividends received from operating subsidiaries during 2022, 2021 or 2020 represent returns of capital and therefore no portion is presented as an investing activity. |
The condensed financial statements should be read in conjunction with the dividends received from operating subsidiaries during 2017, 2016 or 2015 represent returns of capitalconsolidated financial statements and therefore no portion is presented as an investing activity.notes thereto.
105
Safety Insurance Group, Inc.
Supplementary Insurance InformationInformation
Schedule III
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of December 31, |
| |||||||
|
|
|
|
| Future Policy |
|
|
|
| |
|
| Deferred |
| Benefits, |
|
|
|
| ||
|
| Policy |
| Losses, |
|
|
|
| ||
|
| Acquisition |
| Claims and Loss |
| Unearned |
| |||
Segment |
| Costs |
| Expenses |
| Premiums |
| |||
Property and Casualty Insurance |
|
|
|
|
|
|
| |||
2017 |
| $ | 72,202 |
| $ | 574,054 |
| $ | 428,257 |
|
2016 |
|
| 70,996 |
|
| 560,321 |
|
| 418,033 |
|
2015 |
|
| 68,937 |
|
| 553,977 |
|
| 401,961 |
|
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |||
| | As of December 31, | |
| Years Ended December 31, | ||||||||||
| | | | | Future Policy | | | | |
| | | | | |
| | Deferred | | Benefits, | | | | |
| | | | | ||
| | Policy | | Losses, | | | | |
| | | | Net | ||
| | Acquisition | | Claims and Loss | | Unearned | |
| Earned | | | Investment | |||
Segment | | Costs | | Expenses | | Premiums | |
| Premiums | | | Income | |||
Property and Casualty Insurance |
| |
|
| |
| | | | | | | |||
2022 | | $ | 75,582 | | $ | 549,598 | | $ | 433,375 | | $ | 758,505 | | $ | 46,725 |
2021 | |
| 73,024 | | | 570,651 | | | 413,487 | | | 774,328 | | | 44,135 |
2020 | |
| 74,962 | | | 567,581 | | | 421,901 | | | 771,078 | | | 41,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Years Ended December 31, |
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
| Benefits, |
| Amortization of |
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
| Claims, |
| Deferred |
|
|
|
|
|
|
|
|
| ||
|
|
|
|
| Net |
| Losses, and |
| Policy |
|
| Other |
|
|
|
|
|
| |||
|
| Premium |
| Investment |
| Settlement |
| Acquisition |
|
| Operating |
| Premiums |
|
|
| |||||
Segment |
| Revenue |
| Income |
| Expenses |
| Costs |
|
| Expenses |
| Written |
|
|
| |||||
Property and Casualty Insurance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
2017 |
| $ | 774,420 |
| $ | 38,758 |
| $ | 503,887 |
| $ | 144,703 |
| $ | 103,733 |
| $ | 781,054 |
|
|
|
2016 |
|
| 755,760 |
|
| 38,413 |
|
| 493,433 |
|
| 141,540 |
|
| 91,477 |
|
| 766,470 |
|
|
|
2015 |
|
| 738,164 |
|
| 40,534 |
|
| 612,569 |
|
| 138,239 |
|
| 75,700 |
|
| 746,180 |
|
|
|
| | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, | ||||||||||||||||
| | | | | | | | Benefits, | | Amortization of | | | | | | | ||
| | | | | | | | Claims, | | Deferred | | | | | | | ||
| | | | | Net | | Losses, and | | Policy | | | Other | | | | |||
| | Premium | | Investment | | Settlement | | Acquisition | | | Operating | | Premiums | |||||
Segment | | Revenue | | Income | | Expenses | | Costs | | | Expenses | | Written | |||||
Property and Casualty Insurance |
|
|
| |
|
| |
|
|
| |
| |
|
| |||
2022 |
| $ | 758,505 |
| $ | 46,725 | | $ | 491,979 | | $ | 146,013 |
| $ | 99,132 | | $ | 773,735 |
2021 | | | 774,328 |
| | 44,135 | | | 461,727 | | | 146,573 |
| | 111,819 | | | 764,526 |
2020 | | | 771,078 |
| | 41,045 | | | 404,556 | | | 146,955 |
| | 119,527 | | | 763,537 |
106
Safety Insurance Group, Inc.
Schedule IV
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Percent of | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Amount | ||||||||||||||
| | | | | | | | | | | | | | | ||||||||||||||
|
| | |
| | |
| | |
| | | Percent of | |||||||||||||||
| | | | | | | | | | | | | | Amount | ||||||||||||||
Property and Casualty |
| Gross |
| Ceded to Other |
| Assumed from |
| Net |
| Assumed | | Gross | | Ceded to Other | | Assumed from | | Net | | Assumed | ||||||||
Insurance Earned Premiums |
| Amount |
| Companies |
| Other Companies |
| Amount |
| to Net | | Amount | | Companies | | Other Companies | | Amount | | to Net | ||||||||
Years ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | |
2017 |
| $ | 818,804 |
| $ | 76,886 |
| $ | 32,502 |
| $ | 774,420 |
| 4.2% | ||||||||||||||
2016 |
|
| 796,366 |
|
| 70,150 |
|
| 29,544 |
|
| 755,760 |
| 3.9% | ||||||||||||||
2015 |
|
| 776,633 |
|
| 64,288 |
|
| 25,819 |
|
| 738,164 |
| 3.5% | ||||||||||||||
2022 | | $ | 803,289 | | $ | 73,760 | | $ | 28,976 | | $ | 758,505 |
| 3.8% | ||||||||||||||
2021 | |
| 811,329 | | | 67,584 | | | 30,583 | |
| 774,328 |
| 3.9% | ||||||||||||||
2020 | |
| 815,981 | | | 74,268 | | | 29,365 | |
| 771,078 |
| 3.8% | ||||||||||||||
107
Safety Insurance Group, Inc.
Valuation and Qualifying AccountsAccounts
Schedule V
(Dollars in thousands)
| | | | | | | | | | | | | | | |
| | | | | Additions | | | | | | | ||||
| | Balance at | | Charged to | | Charged to | | | | | Balance at | ||||
| | Beginning | | Costs and | | Other | | | | | End of | ||||
| | of Period | | Expenses | | Accounts | | Deductions(1) | | Period | |||||
Allowance for doubtful accounts Years Ended December 31, |
| |
|
| |
|
| |
|
| |
|
| |
|
2022 | | $ | 1,808 | | $ | 1,339 | | $ | — | | $ | 1,701 | | $ | 1,446 |
2021 | |
| 1,754 | | | 2,339 | | | — | | | 2,285 | |
| 1,808 |
2020 | |
| 578 | |
| 3,294 | |
| — | |
| 2,118 | |
| 1,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Additions |
|
|
|
|
|
| ||||
|
| Balance at |
| Charged to |
| Charged to |
|
|
|
| Balance at | ||||
|
| Beginning |
| Costs and |
| Other |
|
|
|
| End of | ||||
|
| of Period |
| Expenses |
| Accounts |
| Deductions(1) |
| Period | |||||
Allowance for doubtful accounts Years Ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 |
| $ | 435 |
| $ | 1,203 |
| $ | — |
| $ | 1,224 |
| $ | 414 |
2016 |
|
| 425 |
|
| 1,162 |
|
| — |
|
| 1,152 |
|
| 435 |
2015 |
|
| 462 |
|
| 1,008 |
|
| — |
|
| 1,045 |
|
| 425 |
(1) Deductions represent write‑offswrite-offs of accounts determined to be uncollectible.
108
Safety Insurance Group, Inc.
Supplemental Information Concerning Property and Casualty Insurance OperationsOperations
Schedule VI
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of December 31, |
| Years Ended December 31, | |||||||||||
|
|
|
|
| Reserves for |
|
|
|
|
|
|
|
|
| |
|
| Deferred |
| Unpaid Claims |
|
|
|
|
|
|
|
|
| ||
|
| Policy |
| and Claims |
|
|
|
|
|
|
| Net | |||
|
| Acquisition |
| Adjustment |
| Unearned |
| Earned |
| Investment | |||||
Affiliation With Registrant |
| Costs |
| Expenses |
| Premiums |
| Premiums |
| Income | |||||
Consolidated Property & Casualty Subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 |
| $ | 72,202 |
| $ | 574,054 |
| $ | 428,257 |
| $ | 774,420 |
| $ | 38,758 |
2016 |
|
| 70,996 |
|
| 560,321 |
|
| 418,033 |
|
| 755,760 |
|
| 38,413 |
2015 |
|
| 68,937 |
|
| 553,977 |
|
| 401,961 |
|
| 738,164 |
|
| 40,534 |
| | | | | | | | | | | | | | | |
| | As of December 31, | | Years Ended December 31, | |||||||||||
| | | | | Reserves for | | | | | | | | | | |
| | Deferred | | Unpaid Claims | | | | | | | | | | ||
| | Policy | | and Claims | | | | | | | | Net | |||
| | Acquisition | | Adjustment | | Unearned | | Earned | | Investment | |||||
Affiliation With Registrant | | Costs | | Expenses | | Premiums | | Premiums | | Income | |||||
Consolidated Property & Casualty Subsidiaries |
| |
| |
|
|
| |
|
| |
|
| |
|
2022 | | $ | 75,582 | | $ | 549,598 | | $ | 433,375 | | $ | 758,505 | | $ | 46,725 |
2021 | |
| 73,024 | | | 570,651 | | | 413,487 | | | 774,328 | | | 44,135 |
2020 | |
| 74,962 | | | 567,581 | | | 421,901 | | | 771,078 | | | 41,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Years Ended December 31, | |||||||||||||
|
| Claims and Claims |
|
| Amortization |
|
| Paid Claims |
|
|
| ||||
|
| Adjustment Expenses |
|
| of Deferred |
|
| and Claims |
|
|
| ||||
|
| Incurred Related to |
|
| Policy |
|
|
|
|
|
| ||||
|
| Current |
| Prior |
|
| Acquisition |
|
| Adjustment |
| Premiums | |||
Affiliation With Registrant |
| Year |
| Year |
|
| Costs |
|
| Expenses |
| Written | |||
Consolidated Property & Casualty Subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 |
| $ | 545,671 |
| $ | (41,784) |
| $ | 144,703 |
| $ | 489,515 |
| $ | 781,054 |
2016 |
|
| 538,881 |
|
| (45,448) |
|
| 141,540 |
|
| 502,552 |
|
| 766,470 |
2015 |
|
| 642,882 |
|
| (30,313) |
|
| 138,239 |
|
| 547,620 |
|
| 746,180 |
| | | | | | | | | | | | | | | |
| | Years Ended December 31, | |||||||||||||
| | Claims and Claims | | | Amortization | | | | | | | ||||
| | Adjustment Expenses | | | of Deferred | | | Paid Claims | | | | ||||
| | Incurred Related to | | | Policy | | | and Claims | | | | ||||
| | Current | | Prior | | | Acquisition | | | Adjustment | | Premiums | |||
Affiliation With Registrant | | Year | | Year | | | Costs | | | Expenses | | Written | |||
Consolidated Property & Casualty Subsidiaries |
| |
|
| |
|
| |
|
| |
|
| |
|
2022 | | $ | 549,258 | | $ | (57,279) | | $ | 146,013 | | $ | 515,759 | | $ | 773,735 |
2021 | |
| 515,400 | | | (53,673) | | | 146,573 | | | 443,013 | | | 764,526 |
2020 | |
| 459,400 | | | (54,844) | | | 146,955 | | | 431,480 | | | 763,537 |
109
110
110
10.22 | |
10.23 | |
10.24 | |
10.25 | |
10.26 | |
| |
10.28 | |
10.29 | |
21 | |
23.1 | |
23.2 | |
24 | Power of Attorney |
31.1 | |
31.2 | |
32.1 | |
32.2 | |
101.INS | Inline XBRL Instance Document |
101.SCH | Inline XBRL Taxonomy Extension Schema |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase |
104 | Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101) (19) |
(1) | Incorporated herein by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-87056) filed April 26, 2002, and as amended on Form S-8 (Reg. No. 333-110676) filed on November 21, 2003, as |
111
(1)Incorporated herein by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-87056) filed April 26, 2002, and as amended on Form S-8 (Reg. No. 333-110676) filed on November 21, 2003 and as amended on Form S-8 (Reg. No. 333-140423) filed on February 2, 2007.Table of Contents
(2)Incorporated herein by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-87056) filed April 26, 2002, and as amended on Form S-8 (Reg. No. 333-110676) filed on November 21, 2003 and as amended on Form S-8 (Reg. No. 333-140423) filed on February 2, 2007, and as incorporated herein by referenceamended on Form 10-Q for the quarterly period ended March 31, 2007, as filed on May 5, 2007.
(3)Denotes management contract or compensation plan or arrangement.
(4)Incorporated herein by reference to the Registrant’s Form 10-K for the year ended December 31, 2004 filed on March 16, 2005.
(5)Incorporated herein by reference to the Registrant’s Form 10-K for the year ended December 31, 2006 filed on March 1, 2007.
(6)Incorporated herein by reference to the Registrant’s Form 10-K for the year ended December 31, 2007 filed on March 14, 2008.
(7)Incorporated herein by reference to the Registrant’s Form 8-K filed on December 31, 2008.
111
(8)Incorporated herein by reference to the Registrant’s Form 10-Q for the quarter ended September 30, 2008, as filed on November 7, 2008.
(9)Incorporated herein by reference to the Registrant’s Form 10-K for the year ended December 31, 2010 filed on March 14, 2011.
(10)Incorporated herein by reference to the Registrant’s Form 10-K for the year ended December 31, 2012 filed on March 18, 2013
(11)Incorporated herein by reference to the Registrant’s Form 8-KS-8 (Reg. No. 333-226690) filed on August 27, 2013.8, 2018.
(2) | Incorporated herein by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-87056) filed April 26, 2002, and as amended on Form S-8 (Reg. No. 333-110676) filed on November 21, 2003, as amended on Form S-8 (Reg. No. 333-140423) filed on February 2, 2007, and as amended on Form S-8 (Reg. No. 333-226690) filed on August 8, 2018 and as incorporated herein by reference on Form 10-Q for the quarterly period ended March 31, 2007, as filed on May 5, 2007, and as incorporated by reference to the Registrant’s Form 10-K for the year ended December 31, 2017, as filed on February 28, 2018. |
(3) | Denotes management contract or compensation plan or arrangement. |
(4) | Incorporated herein by reference to the Registrant’s Form 10-K for the year ended December 31, 2004 filed on March 16, 2005. |
(5) | Incorporated herein by reference to the Registrant’s Form 10-K for the year ended December 31, 2006 filed on March 1, 2007. |
(6) | Incorporated herein by reference to the Registrant’s Form 8-K filed on December 31, 2008. |
(7) | Incorporated herein by reference to the Registrant’s Form 10-Q for the quarter ended September 30, 2008, as filed on November 7, 2008. |
(8) | Incorporated herein by reference to the Registrant’s Form 10-K for the year ended December 31, 2010 filed on March 14, 2011. |
(9) | Incorporated herein by reference to the Registrant’s Form 10-K for the year ended December 31, 2012 filed on March 18, 2013 |
(10) | Incorporated herein by reference to the Registrant’s Form 8-K filed on August 27, 2013. |
(11) | Incorporated herein by reference to the Registrant’s Form 10-Q for the quarter ended June 30, 2013, as filed on August 9, 2013. |
(12) | Incorporated herein by reference to the Registrant’s Form 10-K for the year ended December 31, 2014 filed on March 2, 2015 |
(13) | Incorporated herein by reference to the Registrant’s Form 10-Q for the quarter ended June 30, 2016, as filed on August 5, 2016. |
(14) | Incorporated herein by reference to the Registrant’s Form 10-K for the year ended December 31, 2017, as filed on February 28, 2018. |
(15) | Incorporated herein by reference to the Registrant’s Definitive Proxy Statement filed on April 11, 2018. |
(16) | Incorporated herein by reference to the Registrant’s Form 10-K for the year ended December 31, 2019, as filed on February 28, 2020. |
(17) | Incorporated herein by reference to the Registrant’s Form 10-K for the year ended December 31, 2020, as filed on February 26, 2021. |
(18) | Incorporated herein by reference to the Registrant’s Form 10-K for the year ended December 31, 2021, as filed on February 28, 2022. |
(19) | Included herein. |
(12)Incorporated herein by reference to the Registrant’s Form 10-Q for the quarter ended June 30, 2013, as filed on August 9, 2013.
(13)Incorporated herein by reference to the Registrant’s Form 10-K for the year ended December 31, 2014 filed on March 2, 2015
(14)Incorporated herein by reference to the Registrant’s Form 10-Q for the quarter ended June 30, 2016, as filed on August 5, 2016.
(15)Included herein.
112
113
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on February 28, 20182023
| | |
Safety Insurance Group, Inc. | | |
By: | /s/ George M. Murphy | |
| George M. Murphy, | |
| President, Chief Executive Officer | |
114
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints George M. Murphy and William J. Begley, Jr.,Christopher T. Whitford, and each of them individually, his true and lawful attorney-in-fact and agent with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each such attorney-in-fact and agent, or his substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, to all intents and purposes and as fully as he might or could do in person, hereby ratifying and confirming all that each such attorney-in-fact and agent, or his substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed by the following persons in the capacities and on the date indicated:
| | |
| | |
Signature | Title | Date |
| | |
| President, Chief Executive Officer | February 28, |
George M. Murphy | | |
| | |
| Vice President, Chief Financial Officer, | February 28, |
| Secretary, and Principal Accounting Officer | |
| | |
/s/ David F. Brussard | Director | February 28, |
David F. Brussard | | |
| | |
|
|
|
| ||
| Director | February 28, |
Peter J. Manning | | |
| | |
| Lead Independent Director | February 28, 2023 |
Thalia M. Meehan | | |
| | |
/s/ Mary C. Moran | Director | February 28, |
| | |
| | |
| Director | February 28, |
| | |
| | |
/s/ Deborah E. Gray | Director | February 28, 2023 |
Deborah E. Gray | | |
| | |
115