SAFETY INSURANCE GROUP INC - 10-Q Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2004

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 1-8993

SAFETY INSURANCE GROUP, INC.
(Exact name of registrant as specified in its charter)

Delaware		13-4181699
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

20 Custom House Street, Boston, Massachusetts 02110
(Address of principal executive offices including zip code)

(617) 951-0600
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ý No o

As of May 7, 2004, 15,334,890 Common Shares with a par value of $0.01 per share were outstanding.

SAFETY INSURANCE GROUP, INC.

Table of Contents

		Page No.
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements
	Consolidated Balance Sheets at March 31, 2004 (Unaudited) and December 31, 2003	3
	Consolidated Statements of Operations for the Three Months Ended March 31, 2004 and 2003 (Unaudited)	4
	Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March 31, 2004 and 2003 (Unaudited)	5
	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2004 and 2003 (Unaudited)	6
	Consolidated Statements of Cash Flows for the Three Months Ended March 31 ,2004 and 2003 (Unaudited)	7
	Notes to Unaudited Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Executive Summary	14
	Critical Accounting Policies	18
	Results of Operations — Three Months Ended March 31, 2004 and 2003	19
	Liquidity and Capital Resources	22
	Forward-Looking Statements	23

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	24

Item 4.	Controls and Procedures	25

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	25

Item 2.	Changes in Securities and Use of Proceeds	25

Item 3.	Defaults upon Senior Securities	25

Item 4.	Submission of Matters to a Vote of Security Holders	25

Item 5.	Other Information	25

Item 6.	Exhibits and Reports on Form 8-K	25

SIGNATURE		25

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Safety Insurance Group, Inc. and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands, except share data)

	March 31, 2004		December 31, 2003
	(Unaudited)
Assets
Investment securities available for sale:
Fixed maturities, at fair value (amortized cost: $659,477 and $654,175, respectively)	$	684,723	$	673,636
Cash and cash equivalents	43,567		26,284
Accounts receivable, net of allowance for doubtful accounts	148,918		134,145
Accrued investment income	7,756		7,224
Taxes receivable	—		1,484
Receivable from reinsurers related to paid loss and loss adjustment expenses	41,851		47,503
Receivable from reinsurers related to unpaid loss and loss adjustment expenses	76,498		73,539
Prepaid reinsurance premiums	37,268		33,474
Deferred policy acquisition costs	44,169		40,177
Deferred income taxes	6,804		8,692
Equity and deposits in pools	8,084		26,989
Other assets	3,570		3,149
Total assets	$	1,103,208	$	1,076,296

Liabilities
Loss and loss adjustment expense reserves	$	401,285	$	383,551
Unearned premium reserves	337,589		301,227
Accounts payable and accrued liabilities	18,820		37,497
Taxes payable	626		—
Outstanding claims drafts	18,555		20,045
Payable for securities	2,274		—
Payable to reinsurers	26,742		45,338
Capital lease obligations	644		662
Debt	19,956		19,956
Total liabilities	826,491		808,276

Commitments and contingencies (Note 6)

Shareholders’ equity

Common stock: $0.01 par value; 30,000,000 shares authorized; and 15,334,690 shares and 15,259,991 shares issued and outstanding, respectively	153		153
Additional paid-in capital	111,132		111,074
Accumulated other comprehensive income, net of taxes	16,411		12,650
Promissory notes receivable from management	—		(34		)
Retained earnings	149,021		144,177
Total shareholders’ equity	276,717		268,020
Total liabilities and shareholders’ equity	$	1,103,208	$	1,076,296

The accompanying notes are an integral part of these financial statements

Safety Insurance Group, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

(Dollars in thousands, except per share and share data)

	Three Months Ended March 31,
	2004		2003

Net earned premiums	$	143,926	$	132,070
Investment income	6,823		7,029
Net realized gains (losses) on investments	517