Safety Group Notes Q1 Results

Boston-based Safety Insurance Group, Inc. reported first quarter 2003 results, with net income available to common shareholders for the three months ended March 31, 2003 at $2.9 million, or $0.19 per diluted share, compared to $3.0 million, or $0.53 per diluted share, for the three months ended March 31, 2002. Safety’s book value per share was $16.38 at March 31, 2003, compared to $16.07 at Dec. 31, 2002, based on 15,259,991 shares of common stock outstanding at the end of each period.

Direct written premiums for the three months ended March 31, 2003 increased by $14.8 million, or 9.7 percent, to $167.4 million from $152.6 million for the three months ended March 31, 2002. The primary reason for this increase occurred in the personal automobile line of insurance which experienced a 7.2 percent increase in average written premium and a 0.1 percent increase in written exposures.

In addition, the company increased its commercial automobile line average rates by 7.1 percent effective Dec. 16, 2002 and had a 5.2 percent increase in written exposures, while it increased the homeowners line average rates by 9.3 percent effective Feb. 19, 2003 and had a 1.5 percent decrease in written exposures.

Net written premiums for the three months ended March 31, 2003 increased by $15.5 million, or 10.2 percent, to $167.2 million from $151.7 million for the three months ended March 31, 2002. This was primarily due to an increase in direct written premiums, in addition to an increase in assumed premiums from Commonwealth Automobile Reinsurers (“CAR”).

Net earned premiums for the three months ended March 31, 2003 increased by $13.1 million, or 11.0 percent, to $132.1 million from $119.0 million for the three months ended March 31, 2002. This was primarily due to increased rates on personal automobile, commercial automobile and homeowners product lines, as well as an increase in assumed premiums from CAR.

Investment income for the three months ended March 31, 2003 increased to $7.0 million from $6.9 million for the three months ended March 31, 2002. An increase of $67.3 million or 12.5 percent in average cash and invested securities (at amortized cost) to $605.6 million for the three months ended March 31, 2003 from $538.3 million for the three months ended March 31, 2002 was more than offset by a decrease in net effective yield on the investment portfolio to 4.6 percent from 5.1 percent during the same period due to declining interest rates, as well as a change in management’s investment strategy to shorten the portfolio duration, shift to higher rated securities, and increase tax-exempt holdings.

Net realized investment losses for the three months ended March 31, 2003 increased to $0.7 million from less than $0.1 million for the three months ended March 31, 2002.

GAAP loss, expense and combined ratios for the three months ended March 31, 2003 were 80.7 percent, 24.1 percent and 104.8 percent compared to 74.7 percent, 28.1 percent and 102.8 percent for the three months ended March 31, 2002.

Primarily due to the severe winter conditions in Massachusetts during the three months ended March 31, 2003 as compared to the mild weather in the three months ended March 31, 2002, the homeowners line, which represents 6.4 percent of net earned premiums, experienced approximate increases of 118 percent in claim frequency and 39 percent in claim severity. The automobile lines experienced a claim frequency increase of approximately 17 percent, which was offset by a reduction of approximately 8 percent in claim severity.

Interest expenses for the three months ended March 31, 2003 decreased by $2.1 million to $0.2 million from $2.3 million for the three months ended March 31, 2002. Interest expenses for the three months ended March 31, 2002 were related to old debt facilities that were extinguished at Safety’s IPO, which occurred on Nov. 27, 2002. Primarily as a result of the IPO, Safety significantly reduced debt outstanding to $20.0 million at March 31, 2003 from $98.5 million at March 31, 2002.