Strong Underwriting Results Enable Security Insurance to Earn Fourth Quarter Earnings • fool.com

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A relatively wet but hot fourth quarter in the northeastern United States helped Group Insurance Assurance (NASDAQ: SAFT) earned $ 18.3 million in the fourth quarter of 2018, an improvement of 62% over the same period of the previous year.

On a basis that excludes the ups and downs of the investment portfolio of Safety, the group made a profit of about $ 28.1 million, an increase of 167% over the fourth quarter of 2017. Here's what shareholders should know about Safety's fourth quarter results.

Car key resting on the center console of a car.

Source of the image: Getty Images.

Fourth quarter security insurance group: in figures

Metric

Q4 2018

Q4 2017

Change from one year to the next

Combined ratio

90.5%

101.6%

(11.1 ppt)

Net revenue

$ 18.3 million

$ 11.3 million

62%

Operating income per non-GAAP share

$ 1.83

$ 0.67

173%

EPS diluted

$ 1.19

$ 0.72

65%

Book value per share

$ 47.01

$ 46.06

2%

Data source: Security Insurance Group, annual calculations by author. PPT = percentage points. GAAP = generally accepted accounting principles. EPS = earnings per share.

What happened last quarter?

  • The losses were slight. The fourth quarter of the year can be costly for this Massachusetts based auto and homeowner insurer, but this was not the case in 2018. The company announced a claims ratio (which is the highest). it has paid or expects to pay in the future as a percentage of premiums) of 59.4%, which is significantly higher than the 68.6% loss rate of the same period of the year. ;last year.
  • The development of the previous year helped. Safety Insurance regularly announces a positive evolution of the previous year, which it recognizes by revising downward its estimates of losses incurred in previous years. In the fourth quarter, Safety had recorded a favorable pre-tax change of $ 17.1 million over the prior year, which is better than the $ 10.6 million year-on-year change previous, which partly explains the improvement of the loss ratio.
  • Investment losses took a bite. Prior to 2018, gains or losses on the insurers' investment portfolio only affected the income statement when gains or losses were realized. Now, gains or losses, realized or not, pass through the income statement in real time. This quarter, Safety recorded unrealized losses of approximately $ 12.6 million from its $ 148 million equity portfolio. This largely explains the difference between GAAP and non-GAAP Earnings per share in figures this quarter.

Look to the front

The safety insurance group is more of a motor insurer than anything else because less than 30% of its premiums are generated by other types of insurance, such as homeowners, liability insurance policies and business contracts. That said, almost all of its lines of insurance share a common risk: the climate.

Historically, the first quarter of the year can be a critical safety point as low temperatures, snow and ice destroy personal and commercial property and create challenging driving conditions. Nearly two-thirds of the first quarter, weather conditions in its Massachusetts home market have been favorable so far.

Boston experienced a "dry snow" for much of January. Winter storms heading to Massachusetts this week will cover snow conditions, but even the hardest-hit areas will see about 20 cm of snow, which is just another day in February for a regular state. cold. With a little luck, insurance can escape the first quarter of the year without particularly significant losses.

Underwriting has never been a problem at Safety Insurance, which most often records a subscription profit in a given year. The biggest challenge is rather growth his profitable business book. In the fourth quarter, net earned premiums increased by only 1% year-over-year. Given that the company regularly receives permission to increase rates on auto and homeowners policies, the increase in the number of pedestrians suggests that security is slowly losing customers, albeit very slowly.

Jordan Wathen has no position in the mentioned actions. Motley Fool recommends the insurance group. The Motley Fool has a disclosure policy.