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Safety Insurance(SAFT) - 2023 Q4 - Annual Report

Insurance Operations - The company operates as the third largest private passenger auto premium insurance carrier, the second largest commercial auto insurance carrier, and the third largest homeowner insurance carrier in Massachusetts[20]. - Direct written premiums for private passenger automobile insurance increased to $543,167, representing 54.7% of total premiums in 2023, up from $427,665 (52.0%) in 2022[26]. - The company achieved a total of $991,224 in direct written premiums for all product lines in 2023, compared to $823,318 in 2022, reflecting a significant growth[26]. - The commercial automobile insurance segment accounted for $157,101 in direct written premiums, or 15.9% of total premiums in 2023, up from $143,571 (17.4%) in 2022[26]. - Homeowners insurance premiums reached $242,346, making up 24.5% of total premiums in 2023, compared to $208,577 (25.3%) in 2022[26]. - The company plans to further penetrate the Massachusetts, New Hampshire, and Maine markets across all lines of business[27]. - In 2023, 64.5% of private passenger automobile exposures insured had an other than private passenger policy with the company, compared to 65.2% in 2022[48]. - The company distributes products exclusively through independent agents, with 97.1% of direct written premiums for automobile insurance obtained through voluntary agents in 2023[42]. Technology and Innovation - The company is focused on expanding technology to enhance the ease of doing business for independent agents, thereby strengthening relationships[27]. - The company introduced the Safety Commercial Express system in 2021, which was updated in 2022 to allow for agent processing of endorsements[69]. - The Innovation Lab conducted significant research on Generative AI in 2023, with results expected in 2024[71]. - The automated adjuster assignment system categorizes new claims by severity, improving claims management efficiency[73]. - The company has made substantial investments in information technology to enhance agent support and customer service[53]. - The company’s proprietary software applications facilitate real-time policy issuance and data imports from major agency management systems[60]. - The company’s cybersecurity strategy includes ongoing employee education and monitoring for emerging threats[70]. Financial Performance - The bad debt expense as a percentage of direct written premiums was 0.2% in 2023, compared to 0.1% in 2022[76]. - The total incurred losses and LAE for the year 2023 amounted to $642,302, compared to $491,979 in 2022, reflecting a significant increase[97]. - The company paid total losses and LAE of $608,048 in 2023, compared to $515,759 in 2022, showing an increase in claims payments[97]. - The cumulative amounts paid for claims one year later were $198,414 for 2023, indicating the company's ongoing claims management[99]. - The company decreased loss reserves related to prior years by $47,381 in 2023, $57,279 in 2022, and $53,673 in 2021, indicating a trend of releasing redundant reserves[100]. - The reserves for losses and LAE at the end of 2023 were $603,081, up from $549,598 at the end of 2022[99]. - Management believes that the provision for unpaid losses and LAE as of December 31, 2023, is adequate to cover the ultimate cost of losses and claims incurred[93]. Reinsurance Strategy - The company’s reinsurance strategy involves selective partnerships with financially stable reinsurers, most of which have an A.M. Best rating of "A+" or "A"[104]. - In 2023, the company purchased three layers of excess catastrophe reinsurance providing $590,000 of coverage for property losses in excess of $75,000 up to a maximum of $665,000[105]. - For 2024, the company has increased its reinsurance coverage to $615,000 for property losses in excess of $75,000 up to a maximum of $690,000[106]. Investment Portfolio - As of December 31, 2023, the company's investment portfolio was valued at $1,424,113, with 73.9% in fixed maturity securities[133]. - The company has a high-quality investment portfolio primarily consisting of investment grade corporate fixed maturity securities, U.S. government and agency securities, and asset-backed securities[130]. - The estimated fair value of U.S. Treasury securities and obligations of U.S. Government agencies was $247,237 million, representing 23.5% of the total portfolio[141]. - Total estimated fair value of fixed income securities was $1,052,145 million as of December 31, 2023, slightly up from $1,050,155 million in 2022[141]. - The portfolio of fixed maturity investments included 65.8% rated Category 1 and 18.8% rated Category 2 as of December 31, 2023[143]. - The company has a commitment to inclusiveness and actively seeks highly-qualified candidates from diverse backgrounds[120]. Employee and Management Information - The company employs 539 employees as of December 31, 2023, all located in the New England region[119]. - George M. Murphy has been with the Company for over 35 years and was elected Chairman of the Board on May 17, 2023[172]. - Christopher T. Whitford has served as Chief Financial Officer since March 2, 2020, and has over 11 years of experience with the Company[173]. - James D. Berry has been employed by the Company for over 41 years and has directed the Massachusetts Private Passenger line of business since 2001[176]. - Ann M. McKeown, Vice President of Insurance Operations, will retire effective March 1, 2024, after over 34 years with the Company[178]. - Brian S. Lam was appointed Vice President of Insurance Operations effective March 1, 2024, and has been with the Company since 2002[182]. - The Company has adopted a Code of Business Conduct and Ethics applicable to all employees and directors, available on its website[192]. Regulatory and Risk Management - The company is subject to comprehensive regulation by state insurance departments, with the most recent financial condition examination covering the five-year period ending December 31, 2018[152]. - The Company completed its Own Risk Solvency Assessment (ORSA) filing for the 2023 period, as required by the National Association of Insurance Commissioners[169]. - The Company has significant exposure to market risk primarily due to changes in interest rates, with fixed and variable rate debt as sources of financing[405]. - The Company holds a substantial amount of fixed maturity investments, including U.S. and foreign government bonds, which are sensitive to interest rate changes[406]. - The company does not plan to enter into any derivative financial instruments for trading or speculative purposes[405]. Financial Metrics - Total assets increased to $2,094,004 as of December 31, 2023, up from $1,972,569 in 2022, reflecting a growth of approximately 6.2%[430]. - Loss and loss adjustment expense reserves rose to $603,081 in 2023, compared to $549,598 in 2022, indicating an increase of about 9.7%[430]. - The company's total investments reached $1,424,113 as of December 31, 2023, compared to $1,403,160 in 2022, marking a growth of approximately 1.5%[430]. - Cash and cash equivalents increased to $38,152 in 2023 from $25,300 in 2022, representing a significant increase of about 50.9%[430]. - The allowance for expected credit losses for fixed maturities increased from $678 in 2022 to $1,208 in 2023, reflecting a rise of approximately 78.1%[430]. - Shareholders' equity decreased to $804,267 in 2023 from $811,999 in 2022, a decline of about 0.9%[430]. - Net investment income increased to $56,377 million in 2023, up 20.3% from $46,725 million in 2022[138]. - Net effective yield improved to 4.0% in 2023, compared to 3.2% in 2022, reflecting a 25% increase[138].