Safety Insurance Group Inc. Reports Operating Results (10-Q)
Safety Insurance Group is the parent of Safety Insurance Company a Boston MA based writer of property and casualty insurance. Safety is a leading writer of private passenger automobile insurance in Massachusetts. Safety Insurance Group Inc. has a market cap of $518.1 million; its shares were traded at around $32.87 with a P/E ratio of 8.6 and P/S ratio of 0.8. The dividend yield of Safety Insurance Group Inc. stocks is 4.9%. Safety Insurance Group Inc. had an annual average earning growth of 35.4% over the past 5 years. Highlight of Business Operations: We are a leading provider of private passenger automobile insurance in Massachusetts. In addition to private passenger automobile insurance (which represented 71.7% of our direct written premiums in 2008), we offer a portfolio of other insurance products, including commercial automobile (13.2% of 2008 direct written premiums), homeowners (11.6% of 2008 direct written premiums), dwelling fire, umbrella and business owner policies (totaling 3.5% of 2008 direct written premiums). Operating virtually exclusively in Massachusetts through our insurance company subsidiaries, Safety Insurance, Safety Indemnity, and Safety P&C, (together referred to as the Insurance Subsidiaries), we have established strong relationships with 827 independent insurance agents in 969 locations throughout Massachusetts. We have used these relationships and our extensive knowledge of the Massachusetts market to become the second largest private passenger automobile and third largest commercial automobile insurance carrier in Massachusetts, capturing an approximate 11.5% and 12.3% share, respectively, of the Massachusetts private passenger and commercial automobile markets in 2009, according to the Commonwealth Automobile Reinsurers (CAR) Cession Volume Analysis Report of July 22, 2009, based on automobile exposures. These statistics total, for each vehicle insured, the number of months during the year insurance for that vehicle is in effect, to arrive at an aggregate number of car-months for each insurer; this aggregate number, divided by 12, equals the insurers number of car-years, a measure we refer to in this discussion as automobile exposures.
As noted above, in 2007 and previous years, the Commissioner set the maximum premium rates that could be charged and minimum commissions that had to be paid to agents for private passenger automobile insurance. Beginning in 2007, the effective date of the Commissioners rate decision was April 1st as compared to January 1st of 2006 and prior rate decisions. The 2006 rates were in effect from January 1, 2006 until March 31, 2007. The Commissioner announced on December 15, 2006, an 11.7% statewide average private passenger automobile insurance rate decrease for 2007, compared to an 8.7% decrease for 2006. Coinciding with the 2007 rate decision, the Commissioner also approved a 13.0% commission rate which agents receive for selling private passenger automobile insurance, as a percentage of premiums, compared to a commission rate of 11.8% in 2006.
Under Managed Competition, we decreased our rates an average 6.7% in 2008. We have filed and been approved for modifications in our rates effective April 1, 2009 that are expected to result in no change in our average total rates. We will also begin using three rating tiers effective April 1, 2009. A Companion Policy Client Tier, which is policyholders that have a non private passenger automobile policy with us will receive a rate decrease of 2.5%. A Loyal Automobile Client Tier, which is policyholders who have been insured with Safety two or more years, will see no rate change. A New Insurance Client Tier, which is policyholders that do not qualify for the other two tiers, will have a rate increase of 2.5%. Our rates include a 13.0% commission rate for agents.
For the six months ended June 30, 2009, our average private passenger automobile premium per exposure decreased by 7.4% from the six months ended June 30, 2008. The table below shows the filed and approved average Massachusetts private passenger automobile premium rate changes and the resulting changes in our average premium per automobile exposure. The 7.4% decrease in average premium per personal automobile exposure is the result of our rounded account pricing strategy introduced under Managed Competition that began April 1, 2008, which has favorable pricing for policyholders that insure an automobile and home with us, and unfavorable pricing for stand-alone automobile policies. More automobile policyholders than we originally estimated have insured both their automobile and home with us, and thus are eligible for our account discount of 10%.
(1) Source: Commissioner rate decisions for 1998 2007, and Safety Insurance for 2008 and 2009. The 11.7% average rate decrease in 2007 was in effect for the period April 1, 2007 through March 31, 2008. Under Managed Competition, the 6.7% average rate decrease in 2008 was effective for the period April 1, 2008 through March 31, 2009.
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