SEC Form 10-Q filed by Safety Insurance Group Inc.

5/9/24 2:30:41 PM ET

$SAFT

Property-Casualty Insurers

Finance

Get the next $SAFT alert in real time by email

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

☐

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: 000-50070

SAFETY INSURANCE GROUP, INC.

(Exact name of registrant as specified in its charter)

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

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)

Not Applicable

(Former name or former address, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.01 per share	SAFT	The Nasdaq Stock Market, LLC

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 ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ⌧

As of May 2, 2024 there were 14,836,565 shares of common stock with a par value of $0.01 per share outstanding.

Table of Contents

SAFETY INSURANCE GROUP, INC.

TABLE OF CONTENTS

		Page No.
Part I. Financial Information
Item 1.	Consolidated Financial Statements
	Consolidated Balance Sheets	3
	Consolidated Statements of Operations	4
	Consolidated Statements of Comprehensive Income (Loss)	5
	Consolidated Statements of Changes in Shareholders’ Equity	6
	Consolidated Statements of Cash Flows	7
	Notes to Unaudited Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Information about Market Risk	42
Item 4.	Controls and Procedures	42
Part II. Other Information
Item 1	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 3.	Defaults upon Senior Securities	44
Item 4.	Mine Safety Disclosures	44
Item 5.	Other Information	44
Item 6.	Exhibits	44
EXHIBIT INDEX		46
SIGNATURE		47

Table of Contents

Safety Insurance Group, Inc. and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands, except share data)


	March 31,		December 31,
	2024		2023
	(Unaudited)
Assets
Investments:
Fixed maturities, available for sale, at fair value (amortized cost: $1,119,116 and $1,120,682, allowance for expected credit losses of $1,349 and $1,208)	$	1,043,556	$	1,052,145
Equity securities, at fair value (cost: $192,721 and $221,809)		216,598		238,022
Other invested assets		138,270		133,946
Total investments		1,398,424		1,424,113
Cash and cash equivalents		30,801		38,152
Accounts receivable, net of allowance for expected credit losses of $824 and $1,053		269,491		256,687
Receivable for securities sold		322		124
Accrued investment income		8,012		7,261
Taxes recoverable		—		623
Receivable from reinsurers related to paid loss and loss adjustment expenses		15,359		13,129
Receivable from reinsurers related to unpaid loss and loss adjustment expenses		121,504		112,623
Ceded unearned premiums		34,029		32,346
Deferred policy acquisition costs		93,711		91,917
Deferred income taxes		14,667		12,150
Equity and deposits in pools		36,410		35,247
Operating lease right-of-use-assets		19,078		19,756
Goodwill		17,093		17,093
Intangible assets		7,340		7,551
Other assets		27,198		25,232
Total assets	$	2,093,439	$	2,094,004

Liabilities
Loss and loss adjustment expense reserves	$	603,796	$	603,081
Unearned premium reserves		544,075		528,150
Accounts payable and accrued liabilities		60,615		64,235
Payable for securities purchased		6,434		1,863
Payable to reinsurers		12,496		15,941
Taxes payable		780		—
Short-term debt		30,000		—
Long-term debt		—		30,000
Operating lease liabilities		19,078		19,756
Other liabilities		9,094		26,711
Total liabilities		1,286,368		1,289,737

Commitments and contingencies (Note 8)

Shareholders’ equity
Common stock: $0.01 par value; 30,000,000 shares authorized; 17,994,242 and 17,949,484 shares issued		180		179
Additional paid-in capital		227,820		226,380
Accumulated other comprehensive loss, net of taxes		(58,626)		(53,191)
Retained earnings		787,990		781,192
Treasury stock, at cost: 3,157,577 and 3,157,577 shares		(150,293)		(150,293)
Total shareholders’ equity		807,071		804,267
Total liabilities and shareholders’ equity	$	2,093,439	$	2,094,004

The accompanying notes are an integral part of these financial statements.

Table of Contents

Safety Insurance Group, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

(Dollars in thousands, except per share data)


	Three Months Ended March 31,
	2024		2023

Net earned premiums	$	236,053	$	191,735
Net investment income		15,231		13,654
Earnings from partnership investments		1,772		2,166
Net realized gains on investments		492		733
Change in net unrealized gains on equity securities		7,665		770
Credit loss expense		(142)		(922)
Commission income		1,808		1,483
Finance and other service income		5,354		4,140
Total revenue		268,233		213,759

Losses and loss adjustment expenses		168,399		167,153
Underwriting, operating and related expenses		72,267		60,033
Other expense		1,837		1,670
Interest expense		123		210
Total expenses		242,626		229,066

Income (loss) before income taxes		25,607		(15,307)
Income tax expense (benefit)		5,529		(2,970)
Net income (loss)	$	20,078	$	(12,337)

Earnings (loss) per weighted average common share:
Basic	$	1.36	$	(0.84)
Diluted	$	1.36	$	(0.84)

Cash dividends paid per common share	$	0.90	$	0.90

Number of shares used in computing earnings per share:
Basic		14,667,107		14,682,507
Diluted		14,696,590		14,761,861

The accompanying notes are an integral part of these financial statements.

Table of Contents

Safety Insurance Group, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(Dollars in thousands)


	Three Months Ended March 31,
	2024		2023
Net income (loss)	$	20,078	$	(12,337)

Other comprehensive loss, net of tax:
Unrealized holding (losses) gains during the period, net of income tax benefit of ($1,341) and $4,209.		(5,046)		15,834
Reclassification adjustment for net realized gains on investments included in net income, net of income tax benefit of ($103) and ($154).		(389)		(579)
Other comprehensive income (loss), net of tax:		(5,435)		15,255

Comprehensive income	$	14,643	$	2,918

The accompanying notes are an integral part of these financial statements.

Table of Contents

Safety Insurance Group, Inc. and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)

(Dollars in thousands)


					Accumulated
					Other
			Additional		Comprehensive						Total
	Common		Paid-in		Income (Loss),		Retained		Treasury		Shareholders’
	Stock		Capital		Net of Taxes		Earnings		Stock		Equity
Balance at December 31, 2022	$	179	$	222,049	$	(80,538)	$	815,309	$	(145,000)	$	811,999
Net loss, January 1 to March 31, 2023		—		—		—		(12,337)		—		(12,337)
Unrealized gains on securities available for sale, net of deferred federal income taxes		—		—		15,255		—		—		15,255
Restricted share awards issued		—		522		—		—		—		522
Recognition of employee share-based compensation, net of deferred federal income taxes		—		733		—		—		—		733
Dividends paid and accrued		—		—		—		(13,247)		—		(13,247)
Balance at March 31, 2023	$	179	$	223,304	$	(65,283)	$	789,725	$	(145,000)	$	802,925


					Accumulated
					Other
			Additional		Comprehensive						Total
	Common		Paid-in		Income (Loss),		Retained		Treasury		Shareholders’
			Capital		Net of Taxes		Earnings		Stock		Equity
Balance at December 31, 2023	$	179	$	226,380	$	(53,191)	$	781,192	$	(150,293)	$	804,267
Net income, January 1 to March 31, 2024		—		—		—		20,078		—		20,078
Unrealized gains on securities available for sale, net of deferred federal income taxes		—		—		(5,435)		—		—		(5,435)
Restricted share awards issued		—		599		—		—		—		599
Recognition of employee share-based compensation, net of deferred federal income taxes		1		841		—		—		—		842
Dividends paid and accrued		—		—		—		(13,280)		—		(13,280)
Balance at March 31, 2024	$	180	$	227,820	$	(58,626)	$	787,990	$	(150,293)	$	807,071

The accompanying notes are an integral part of these financial statements.

Table of Contents

Safety Insurance Group, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in thousands)


	Three Months Ended March 31,
	2024		2023
Cash flows from operating activities:
Net income (loss)	$	20,078	$	(12,337)
Adjustments to reconcile net income to net cash used for operating activities:
Investment amortization, net		(41)		(69)
Fixed asset depreciation, net		2,260		1,686
Stock based compensation		1,440		1,255
Credit for deferred income taxes		(1,072)		(697)
Net realized gains on investments		(492)		(733)
Credit loss expense		142		922
Earnings from partnership investments		(226)		(2,166)
Change in net unrealized gains on equity securities		(7,665)		(770)
Changes in assets and liabilities:
Accounts receivable, net		(12,804)		(13,018)
Accrued investment income		(751)		496
Receivable from reinsurers		(11,111)		(542)
Ceded unearned premiums		(1,683)		(465)
Deferred policy acquisition costs		(1,794)		(1,337)
Taxes recoverable/payable		1,403		(6,564)
Other assets		(2,112)		434
Loss and loss adjustment expense reserves		715		20,541
Unearned premium reserves		15,925		11,615
Accounts payable and accrued liabilities		(3,285)		(20,123)
Payable to reinsurers		(3,445)		(1,549)
Other liabilities		(16,617)		10,529
Net cash used for operating activities		(21,135)		(12,892)

Cash flows from investing activities:
Fixed maturities purchased		(30,825)		(22,528)
Short term investments purchased		—		(79)
Equity securities purchased		(13,720)		(12,282)
Other invested assets purchased		(5,654)		(8,482)
Proceeds from sales and paydowns of fixed maturities		25,500		36,818
Proceeds from maturities, redemptions, and calls of fixed maturities		11,147		3,132
Proceed from sales of equity securities		43,435		8,310
Proceeds from other invested assets redeemed		1,583		2,301
Acquisition, net of cash received		(1,000)		—
Fixed assets purchased		(3,067)		(535)
Net cash provided by investing activities		27,399		6,655

Cash flows from financing activities:
Proceeds from FHLB loan		—		10,000
Dividends paid to shareholders		(13,615)		(13,747)
Net cash used for financing activities		(13,615)		(3,747)

Net increase (decrease) in cash and cash equivalents		(7,351)		(9,984)
Cash and cash equivalents at beginning of year		38,152		25,300
Cash and cash equivalents at end of period	$	30,801	$	15,316

The accompanying notes are an integral part of these financial statements.

Table of Contents

In this Form 10-Q, Notes to the Unaudited Consolidated Financial Statements, dollar amounts are presented in thousands, except per share data.

1. Basis of Presentation

The consolidated financial statements have been prepared on the basis of accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates.

The consolidated financial statements include Safety Insurance Group, Inc. and its subsidiaries (the “Company”). The subsidiaries consist of Safety Insurance Company, Safety Indemnity Insurance Company, Safety Property and Casualty Insurance Company, Safety Northeast Insurance Company, Safety Northeast Insurance Agency, Inc. (“SNIA”), and Safety Management Corporation (“SMC”), which is SNIA’s holding company. All intercompany transactions, including commission income and other expense, have been eliminated. Eliminated commission income totaled $239 and $180 for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, fiduciary assets held by SNIA were immaterial and less than $200.

The financial information for the three months ended March 31, 2024 and 2023 is unaudited; however, in the opinion of the Company, the information includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial condition, results of operations, and cash flows for the periods. The financial information as of December 31, 2023 is derived from the audited consolidated financial statements included in the Company's 2023 Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on February 28, 2024.

These unaudited interim consolidated financial statements may not be indicative of financial results for the full year and should be read in conjunction with the audited consolidated financial statements included in the Company’s 2023 Annual Report on Form 10-K filed with the SEC on February 28, 2024.

The Company is a leading provider of property and casualty insurance focused primarily on the Massachusetts market. The Company’s principal product line is automobile insurance. The Company primarily operates through its insurance company subsidiaries, Safety Insurance Company, Safety Indemnity Insurance Company, Safety Property and Casualty Insurance Company, and Safety Northeast Insurance Company (together referred to as the “Insurance Subsidiaries”).

2. Recent Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU updated reportable segment disclosures primarily through enhanced disclosures about significant segment expenses. This ASU does not change how a Company identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments. This ASU is effective for fiscal years starting January 1, 2024, and for interim periods starting January 1, 2025, and will be applied on a retrospective basis. The ASU will not have a material impact on the Company’s consolidated financial position, results of operations or cash flows, but the ASU will require additional disclosures to our 2024 annual and 2025 interim consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU updated the required income tax disclosures to include disclosure of income taxes paid disaggregated by jurisdiction and greater disaggregation of information in the required rate reconciliation. This ASU is effective for fiscal years starting January 1, 2025, and will be applied on a prospective basis. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

Table of Contents

3. Earnings per Weighted Average Common Share

Basic earnings per weighted average common share (“EPS”) are calculated by dividing net income by the weighted average number of basic common shares outstanding during the period. Diluted earnings per share amounts are based on the weighted average number of common shares including non-vested performance stock grants.

The following table sets forth the computation of basic and diluted EPS for the periods indicated.


	Three Months Ended March 31,
	2024		2023
Earnings attributable to common shareholders - basic and diluted:
Net income (loss) from continuing operations	$	20,078	$	(12,337)
Allocation of income for participating shares		(88)		—
Net income (loss) from continuing operations attributed to common shareholders	$	19,990	$	(12,337)
Earnings per share denominator - basic and diluted
Total weighted average common shares outstanding, including participating shares		14,731,713		14,748,357
Less: weighted average participating shares		(64,606)		(65,850)
Basic earnings per share denominator		14,667,107		14,682,507
Common equivalent shares- non-vested performance stock grants		29,483		79,354
Diluted earnings per share denominator		14,696,590		14,761,861

Basic earnings per share	$	1.36	$	(0.84)
Diluted earnings per share	$	1.36	$	(0.84)

Undistributed earnings attributable to common shareholders - basic and diluted:
Net income (loss) from continuing operations attributable to common shareholders -Basic	$	1.36	$	(0.84)
Dividends declared		(0.90)		(0.90)
Undistributed earnings	$	0.46	$	(1.74)

Net income from continuing operations attributable to common shareholders -Diluted	$	1.36	$	(0.84)
Dividends declared		(0.90)		(0.90)
Undistributed earnings	$	0.46	$	(1.74)

Diluted EPS excludes non-vested performance stock grants with exercise prices and exercise tax benefits greater than the average market price of the Company’s common stock during the period because their inclusion would be anti-dilutive. As a result of the net loss for the three months ended March 31, 2023, the Company was required to use basic weighted average common shares outstanding in the calculation of diluted loss per share, since the inclusion of weighted average participating shares and common equivalent shares-non-vested performance stock grants would have been antidilutive to the (loss) earnings per share calculation. There were no anti-dilutive shares related to non-vested performance stock grants for the three months ended March 31, 2024 and 2023, respectively.

4. Share-Based Compensation

2018 Long Term Incentive Plan

On March 24, 2022, the Company’s Board of Directors adopted the Amended and Restated Safety Insurance Group, Inc. 2018 Long-Term Incentive Plan (“the Amended 2018 Plan”), which was subsequently approved by our shareholders at the 2022 Annual Meeting of Shareholders. The Amended 2018 Plan increased the share pool limit by adding 350,000 common shares to the previously adopted Safety Insurance Group, Inc. 2018 Long-Term Incentive Plan. The Amended 2018 Plan enables the grant of stock awards, performance shares, cash-based performance units, other stock-based awards, stock options, stock appreciation rights, and stock unit awards, each of which may be granted separately or in tandem with other awards. Eligibility to participate includes officers, directors, employees and other individuals who provide bona fide services to the Company. The Amended 2018 Plan supersedes the Company’s 2002 Management Omnibus Incentive Plan (“the 2002 Incentive Plan”).

Table of Contents

The Amended 2018 Plan establishes a pool of 700,000 shares of common stock available for issuance to our employees and other eligible participants. The Board of Directors and the Compensation Committee intend to issue awards under the Amended 2018 Plan in the future.

The maximum number of shares of common stock between both the Amended 2018 Plan and 2002 Incentive Plan with respect to which awards may be granted is 3,200,000. No further grants will be allowed under the 2002 Incentive Plan. At March 31, 2024, there were 366,422 shares available for future grant.

Accounting and Reporting for Stock-Based Awards

Accounting Standards Codification (“ASC”) 718, Compensation —Stock Compensation requires the Company to measure and recognize the cost of employee services received in exchange for an award of equity instruments. Under the provisions of ASC 718, share-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite service period (generally the vesting period of the equity grant).

Restricted Stock

Service-based restricted stock awarded in the form of unvested shares is recorded at the market value of the Company’s common stock on the grant date and amortized ratably as compensation expense over the requisite service period. Service-based restricted stock awards generally vest over a three-year period and vest 30% on the first and second anniversaries of the grant date and 40% on the third anniversary of the grant date, except for non-executive employees’ restricted stock awards granted prior to 2018 which vest ratably over a five-year service period and independent directors’ stock awards which vest immediately. Our independent directors are subject to stock ownership guidelines, which require them to have a value four times their annual cash retainer.

In addition to service-based awards, the Company grants performance-based restricted shares to certain employees. These performance shares cliff vest after a three-year performance period provided certain performance measures are attained. A portion of these awards, which contain a market condition, vest according to the level of total shareholder return achieved by the Company compared to its property-casualty insurance peers over a three-year period. The remainder, which contain a performance condition, vest according to the level of Company’s combined ratio results compared to a target based on its property-casualty insurance peers.

Actual payouts can range from 0% to 200% of target shares awarded depending upon the level of achievement of the respective market and performance conditions during a three calendar-year performance period. Compensation expense for share awards with a performance condition is based on the probable number of awards expected to vest using the performance level most likely to be achieved at the end of the performance period.

Performance-based awards with market conditions are accounted for and measured differently from awards that have a performance or service condition. The effect of a market condition is reflected in the award’s fair value on the grant date. That fair value is recognized as compensation cost over the requisite service period regardless of whether the market-based performance objective has been satisfied.

All of the Company’s restricted stock awards are issued as incentive compensation and are equity classified.

Table of Contents

The following table summarizes restricted stock activity under the Amended 2018 Plan during the three months ended March 31, 2024 assuming a target payout for the 2024 performance-based shares.


	Shares	Weighted		Performance-based		Weighted
	Under	Average		Shares Under		Average
	Restriction	Fair Value		Restriction		Fair Value
Outstanding at beginning of year	66,929	$	81.58	78,991		$	81.40
Granted	38,221		85.61	25,390	(1)		85.61
Vested and unrestricted	(38,686)		82.03	(13,912)			79.27
Forfeited	(1,784)		80.11	(17,169)			79.91
Outstanding at end of period	64,680	$	83.68	73,300		$	83.62

(1)	Includes a true-up of previously awarded performance-based restricted share awards. The updated shares were calculated based on the attainment of pre-established performance objectives and granted under the Amended 2018 Plan.

As of March 31, 2024, there was $7,776 of unrecognized compensation expense related to non-vested restricted stock awards that is expected to be recognized over a weighted average period of 1.9 years. The total fair value of the shares that were vested and unrestricted during the three months ended March 31, 2024 and 2023 was $4,276 and $5,359, respectively. For the three months ended March 31, 2024 and 2023, the Company recorded compensation expense related to restricted stock of $1,138 and $991, net of income tax benefits of $302 and $264, respectively, within Underwriting, operating and related expenses on the Consolidated Statements of Operations.

5. Investments

The gross unrealized gains and losses on investments in fixed maturity securities, including redeemable preferred stocks that have characteristics of fixed maturities, short term investments, equity securities, including interests in mutual funds, and other invested assets were as follows for the periods indicated.

As of March 31, 2024

Cost or

Allowance for

Gross Unrealized

Estimated

Amortized

Expected Credit

Fair

Cost

Losses

Gains

Losses (3)

Value

U.S. Treasury securities

2,420

—

(122)

2,302

Obligations of states and political subdivisions

38,576

—

202

(2,393)

36,385

Residential mortgage-backed securities (1)

266,625

—

982

(25,445)

242,162

Commercial mortgage-backed securities

150,621

—

180

(14,240)

136,561

Other asset-backed securities

59,192

—

145

(2,488)

56,849

Corporate and other securities

601,682

(1,349)

2,783

(33,819)

569,297

Subtotal, fixed maturity securities

1,119,116

(1,349)

4,296

(78,507)

1,043,556

Equity securities (2)

192,721

—

30,729

(6,852)

216,598

Other invested assets (4)

138,270

—

138,270

Totals

1,450,107

(1,349)

35,025

(85,359)

1,398,424

Table of Contents


	As of December 31, 2023

	Cost or		Allowance for		Gross Unrealized				Estimated
	Amortized		Expected Credit						Fair
	Cost		Losses		Gains		Losses (3)		Value
U.S. Treasury securities	$	2,420	$	—	$	15	$	(115)	$	2,320
Obligations of states and political subdivisions		38,682		—		262		(2,421)		36,523
Residential mortgage-backed securities (1)		267,271		—		1,945		(21,979)		247,237
Commercial mortgage-backed securities		153,923		—		200		(14,273)		139,850
Other asset-backed securities		64,043		—		217		(2,927)		61,333
Corporate and other securities		594,343		(1,208)		3,785		(32,038)		564,882
Subtotal, fixed maturity securities		1,120,682		(1,208)		6,424		(73,753)		1,052,145
Equity securities (2)		221,809		—		25,707		(9,494)		238,022
Other invested assets (4)		133,946		—		—		—		133,946
Totals	$	1,476,437	$	(1,208)	$	32,131	$	(83,247)	$	1,424,113

(1)

Residential mortgage-backed securities consists primarily of obligations of U.S. Government agencies including collateralized mortgage obligations issued, guaranteed and/or insured by the following issuers: Government National Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage Association (FNMA) and the Federal Home Loan Bank (FHLB).

(2)	Equity securities include common stock, preferred stock, mutual funds and interests in mutual funds held to fund the Company’s executive deferred compensation plan.

(3)	The Company’s investment portfolio included 855 and 861 securities in an unrealized loss position at March 31, 2024 and December 31, 2023, respectively.

(4)	Other invested assets are accounted for under the equity method which approximated fair value.

The amortized cost and the estimated fair value of fixed maturity securities, by maturity, are shown below for the period indicated. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	As of March 31, 2024
	Amortized		Estimated
	Cost		Fair Value
Due in one year or less	$	34,690	$	34,363
Due after one year through five years		339,423		323,113
Due after five years through ten years		244,223		227,648
Due after ten years through twenty years		24,092		22,573
Due after twenty years		250		288
Asset-backed securities		476,438		435,571
Totals	$	1,119,116	$	1,043,556

The gross realized gains and losses on sales of investments were as follows for the periods indicated.


	Three Months Ended March 31,
	2024		2023
Gross realized gains
Fixed maturity securities	$	230	$	539
Equity securities		3,137		1,523
Gross realized losses
Fixed maturity securities		(363)		(622)
Equity securities		(2,512)		(707)
Net realized gains on investments	$	492	$	733

In the normal course of business, the Company enters into transactions involving various types of financial instruments, including investments in fixed maturities and equity securities. Investment transactions have credit exposure to the extent that a counter party may default on an obligation to the Company. Credit risk is a consequence of carrying, trading and investing in securities. To manage credit risk, the Company focuses on higher quality fixed income securities, reviews the credit strength of all companies in which it invests, limits its exposure in any one investment and monitors the portfolio quality, taking into account credit ratings assigned by recognized statistical rating organizations.

Table of Contents

The following tables as of March 31, 2024 and December 31, 2023 present the gross unrealized losses included in the Company’s investment portfolio and the fair value of those securities aggregated by investment category. The tables also present the length of time that they have been in a continuous unrealized loss position.

As of March 31, 2024

Less than 12 Months

12 Months or More

Total

Estimated

Unrealized

Estimated

Unrealized

Estimated

Unrealized

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

U.S. Treasury securities

—

1,700

122

1,700

122

Obligations of states and political subdivisions

3,443

29,243

2,383

32,686

2,393

Residential mortgage-backed securities

25,451

299

179,261

25,146

204,712

25,445

Commercial mortgage-backed securities

3,693

122

127,598

14,118

131,291

14,240

Other asset-backed securities

23,328

209

24,231

2,279

47,559

2,488

Corporate and other securities

60,976

1,712

361,771

32,107

422,747

33,819

Subtotal, fixed maturity securities

116,891

2,352

723,804

76,155

840,695

78,507

Equity securities

24,912

2,095

27,805

4,757

52,717

6,852

Total temporarily impaired securities

141,803

4,447

751,609

80,912

893,412

85,359


	As of December 31, 2023
	Less than 12 Months				12 Months or More				Total
	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
U.S. Treasury securities	$	—	$	—	$	1,708	$	115	$	1,708	$	115
Obligations of states and political subdivisions		403		17		28,893		2,404		29,296		2,421
Residential mortgage-backed securities		11,248		167		182,794		21,812		194,042		21,979
Commercial mortgage-backed securities		4,067		108		130,493		14,165		134,560		14,273
Other asset-backed securities		5,973		224		46,600		2,703		52,573		2,927
Corporate and other securities		39,453		1,338		369,163		30,700		408,616		32,038
Subtotal, fixed maturity securities		61,144		1,854		759,651		71,899		820,795		73,753
Equity securities		34,272		3,079		45,797		6,415		80,069		9,494
Total temporarily impaired securities	$	95,416	$	4,933	$	805,448	$	78,314	$	900,864	$	83,247

At March 31, 2024, U.S. Government residential mortgage backed securities with a fair value of $51,180 are pledged as collateral for a borrowing with the Federal Home Loan Bank of Boston (“FHLB-Boston”) as described in Note 9 – Debt. These securities are included in fixed maturity securities on the Company’s Consolidated Balance Sheets.

Impairments

For fixed maturities that the Company does not intend to sell or for which it is more likely than not that the Company would not be required to sell before an anticipated recovery in value, the Company separates the expected credit loss component of the impairment from the amount related to all other factors. The expected credit loss component is recognized as an allowance for expected credit losses. The allowance is adjusted for any additional credit losses and subsequent recoveries, which are booked in income as either credit loss expense or credit loss benefit, respectively. Upon recognizing a credit loss, the cost basis is not adjusted. The impairment related to all other factors (non-credit factors) is reported in other comprehensive income.

For fixed maturities where the Company records a credit loss, a determination is made as to the cause of the impairment and whether the Company expects a recovery in the value. For fixed maturities where the Company expects a recovery in value, the constant effective yield method is utilized, and the investment is amortized to par.

For fixed maturity investments the Company intends to sell or for which it is more likely than not that the Company will be required to sell before an anticipated recovery in value, the full amount of the impairment is included in credit loss expense. The new cost basis of the investment is the previous amortized cost basis less the impairment recognized in credit loss expense. The new cost basis is not adjusted for any subsequent recoveries in fair value.

Table of Contents

The Company uses a systematic methodology to evaluate declines in fair values below cost or amortized cost of our investments. Some of the factors considered in assessing impairment of fixed maturities due to credit losses include the extent to which the fair value is less than amortized cost, the financial condition of and the near and long-term prospects of the issuer, whether the debtor is current on its contractually obligated interest and principal payments, changes to the rating of the security by a rating agency, the historical volatility of the fair value of the security and whether it is more like than not that the Company will be required to sell the investment prior to an anticipated recovery in value.

As of March 31, 2024 and December 31, 2023, the Company concluded that $1,349 and $1,208, respectively, of unrealized losses were due to credit factors and were recorded as an allowance for expected credit losses expense. The Company concluded that outside of the securities that were recognized as credit impaired, the unrealized losses recorded on the fixed maturity portfolio at March 31, 2024 and December 31, 2023 resulted from fluctuations in market interest rates and other temporary market conditions as opposed to fundamental changes in the credit quality of the issuers of such securities. Based upon the analysis performed, the Company’s decision to hold these securities, the Company’s current level of liquidity and our history of positive operating cash flows, management believes it is more likely than not that it will not be required to sell any of its securities before the anticipated recovery in the fair value to its amortized cost basis.

The following table represents a reconciliation of the beginning and ending balances of the allowance for expected credit losses on fixed maturities classified as available for sale.


		Three Months Ended March 31,
		2024		2023
Beginning of period	$	1,208	$	678
Credit losses on securities with no previously recorded credit losses		—		354
Net increases (decreases) in allowance on previously impaired securities		141		568
Reduction due to sales		—		—
Writeoffs charged against allowance		—		—
Recoveries of amounts previously written off		—		—
Ending balance of period	$	1,349	$	1,600

The Company holds no subprime mortgage debt securities. All of the Company’s holdings in mortgage-backed securities are either U.S. Government or Agency guaranteed or are rated investment grade by either Moody’s or Standard & Poor’s.

Net Investment Income

The components of net investment income were as follows:


	Three Months Ended March 31,
	2024		2023
Interest on fixed maturity securities	$	12,948	$	11,744
Dividends on equity securities		1,667		1,610
Equity in earnings of other invested assets		1,407		1,086
Interest on other assets		82		31
Total investment income		16,104		14,471
Investment expenses		873		817
Net investment income	$	15,231	$	13,654

Fair Value of Financial Instruments

ASC 820, Fair Value Measurements and Disclosure, provides a revised definition of fair value, establishes a framework for measuring fair value and expands financial statement disclosure requirements for fair value information. Under ASC 820, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants (an exit price). ASC 820 establishes a fair value hierarchy that distinguishes between inputs based on market data from independent sources (“observable inputs”) and a reporting entity’s internal assumptions based upon the best information available when external market data is limited or

Table of Contents

unavailable (“unobservable inputs”). The fair value hierarchy in ASC 820 prioritizes fair value measurements into three levels based on the nature of the inputs as follows:

Level 1 — Valuations based on quoted prices in active markets for identical assets and liabilities;

Level 2 — Valuations based on observable inputs that do not meet the criteria for Level 1, including quoted prices in inactive markets and quoted prices in active markets for similar, but not identical instruments; and

Level 3 — Valuations based on unobservable inputs.

Fair values for the Company’s fixed maturity securities are based on prices provided by its custodian bank and its investment managers. Both the Company’s custodian bank and investment managers use a variety of independent, nationally recognized pricing services to determine market valuations. If the pricing service cannot provide fair value determinations, the Company obtains non-binding price quotes from broker-dealers. A minimum of two quoted prices is obtained for the majority of the Company’s available-for-sale fixed maturity securities in its investment portfolio. The Company uses a third-party pricing service as its primary provider of quoted prices from third-party pricing services and broker-dealers. To provide reasonable assurance of the validity of each price or quote, a secondary third-party pricing service or broker-dealer quote is obtained from the Company’s custodian or investment managers. An examination of the pricing data is then performed for each security. If the variance between the primary and secondary price quotes for a security is within an accepted tolerance level, the quoted price obtained from the Company’s primary source is used for the security. If the variance between the primary and secondary price quotes exceeds an accepted tolerance level, the Company obtains a quote from an alternative source, if possible, and documents and resolves any differences between the pricing sources. In addition, the Company may request that its investment managers and its traders provide input as to which vendor is providing prices that its traders believe are reflective of fair value for the security. Following this process, the Company may decide to value the security in its financial statements using the secondary or alternative source if it believes that pricing is more reflective of the security’s value than the primary pricing provided by its custodian bank. The Company analyzes market valuations received to verify reasonableness, to understand the key assumptions used and their sources, and to determine an appropriate ASC 820 fair value hierarchy level based upon trading activity and the observability of market inputs. Based on this evaluation and investment class analysis, each price is classified into Level 1, 2 or 3.

Fair values of instruments are based on (i) quoted prices in active markets for identical assets (Level 1), (ii) quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which all significant inputs are observable in active markets (Level 2) or (iii) valuations derived from valuation techniques in which one or more significant inputs are unobservable in the marketplace (Level 3).

The Company’s Level 1 securities consist of equity securities whose values are based on quoted prices in active markets for identical assets. The Company’s Level 2 securities are comprised of available-for-sale fixed maturity securities whose fair value was determined using observable market inputs. The Company’s Level 3 security consists of an investment in the FHLB-Boston related to Safety Insurance Company’s membership stock, which is not redeemable in a short-term time frame. Fair values for securities for which quoted market prices were unavailable were estimated based upon reference to observable inputs such as benchmark interest rates, market comparables, and other relevant inputs. Investments valued using these inputs include U.S. Treasury securities, obligations of states and political subdivisions, corporate and other securities, commercial and residential mortgage-backed securities, and other asset-backed securities. Inputs into the fair value application that are utilized by asset class include but are not limited to:

●Obligations of states and political subdivisions: overall credit quality, including assessments of market sectors and the level and variability of sources of payment such as general obligation, revenue or lease; credit support such as insurance, state or local economic and political base, prefunded and escrowed to maturity covenants.

●Corporate and other securities: overall credit quality, the establishment of a risk adjusted credit spread over the applicable risk-free yield curve for discounted cash flow valuations; assessments of the level of industry economic sensitivity, company financial policies, indenture restrictive covenants, and/or security and collateral.

Table of Contents

●Residential mortgage-backed securities, U.S. agency pass-throughs, collateralized mortgage obligations (“CMOs”), non U.S. agency CMOs: estimates of prepayment speeds based upon historical prepayment rate trends, underlying collateral interest rates, original weighted average maturity, vintage year, borrower credit quality characteristics, interest rate and yield curve forecasts, U.S. government support programs, tax policies, and delinquency/default trends.

●Commercial mortgage-backed securities: overall credit quality, including assessments of the level and variability of credit support and collateral type such as office, retail, or lodging, predictability of cash flows for the deal structure, prevailing economic market conditions.

●Other asset-backed securities: overall credit quality, estimates of prepayment speeds based upon historical trends and characteristics of underlying loans, including assessments of the level and variability of collateral, revenue generating agreements, area licenses agreements, product sourcing agreements and equipment and property leases.

●Federal Home Loan Bank of Boston (“FHLB-Boston”): value is equal to the cost of the member stock purchased, which is expected to be the exit price.

In order to ensure the fair value determination is representative of an exit price (consistent with ASC 820), the Company’s procedures for validating quotes or prices obtained from third parties include, but are not limited to, obtaining a minimum of two price quotes for each fixed maturity security if possible, as discussed above, the periodic testing of sales activity to determine if there are any significant differences between the market price used to value the security as of the balance sheet date and the sales price of the security for sales that occurred around the balance sheet date, and the periodic review of reports provided by its external investment manager regarding those securities with ratings changes and securities placed on its “Watch List.” In addition, valuation techniques utilized by pricing services and prices obtained from external sources are reviewed by the Company’s external investment manager, whose investment professionals are familiar with the securities being priced and the markets in which they trade, to ensure the fair value determination is representative of an exit price (consistent with ASC 820).

All unadjusted estimates of fair value for our fixed maturities priced by the pricing services as described above are included in the amounts disclosed in Level 2. With the exception of the FHLB-Boston security, which is categorized as a Level 3 security, the Company’s entire portfolio was priced based upon quoted market prices or other observable inputs as of March 31, 2024. There were no significant changes to the valuation process during the three months ended March 31, 2024. As of March 31, 2024 and December 31, 2023, no quotes or prices obtained were adjusted by management. All broker quotes obtained were non-binding.

At March 31, 2024 and December 31, 2023, investments in fixed maturities classified as available-for-sale had a fair value which equaled carrying value of $1,043,556 and $1,052,145, respectively. The carrying values of cash and cash equivalents and investment income accrued approximated fair value.

Table of Contents

The following tables summarize the Company’s total fair value measurements for investments for the periods indicated.

As of March 31, 2024

Total

Level 1 Inputs

Level 2 Inputs

Level 3 Inputs

U.S. Treasury securities

2,302

—

2,302

—

Obligations of states and political subdivisions

36,385

—

36,385

—

Residential mortgage-backed securities

242,160

—

242,160

—

Commercial mortgage-backed securities

136,561

—

136,561

—

Other asset-backed securities

56,850

—

56,850

—

Corporate and other securities

569,298

—

569,298

—

Equity securities

183,882

181,796

—

2,086

Total investment securities

1,227,438

181,796

1,043,556

2,086


	As of December 31, 2023
	Total		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
U.S. Treasury securities	$	2,320	$	—	$	2,320	$	—
Obligations of states and political subdivisions		36,523		—		36,523		—
Residential mortgage-backed securities		247,237		—		247,237		—
Commercial mortgage-backed securities		139,850		—		139,850		—
Other asset-backed securities		61,333		—		61,333		—
Corporate and other securities		564,882		—		564,882		—
Equity securities		204,849		202,763		—		2,086
Total investment securities	$	1,256,994	$	202,763	$	1,052,145	$	2,086

As of March 31, 2024 and December 31, 2023, there were approximately $32,716 and $33,173, respectively, in a real estate investment trust (“REIT”). The REIT is excluded from the fair value hierarchy because the fair value is recorded using the net asset value per share practical expedient. The net asset value per share of this REIT is derived from member ownership in the capital venture to which a proportionate share of independently appraised net assets is attributed. The fair value was determined using the trust’s net asset value obtained from its financial statements. The Company is required to submit a request 45 days before a quarter end to dispose of the security.

There were no transfers between Level 1 and Level 2 during the three months ended March 31, 2024 and 2023.

The following table summarizes the changes in the Company’s Level 3 fair value securities for the periods indicated.


	Three Months Ended March 31,
	2024		2023
	Level 3		Level 3
	Fair Value		Fair Value
	Securities		Securities
Balance at beginning of period	$	2,086	$	2,255
Net gains and losses included in earnings		—		—
Net gains included in other comprehensive income		—		—
Purchases		—		680
Sales		—		—
Transfers into Level 3		—		—
Transfers out of Level 3		—		—
Balance at end of period	$	2,086	$	2,935
Amount of total losses included in earnings attributable to the change in unrealized losses related to assets still held at end of period	$	—	$	—

Transfers in and out of Level 3 are attributable to changes in the ability to observe significant inputs in determining fair value exit pricing. As noted in the table above, no transfers were made in or out of Level 3 during the three months ended March 31, 2024 and 2023. The Company held one Level 3 security at March 31, 2024 and 2023.

6. Allowance for Expected Credit Losses

The Company’s financial instruments measured at amortized cost include premiums and accounts receivable, and reinsurance recoverables.

Table of Contents

Premiums and accounts receivable are reported net of an allowance for expected credit losses. The allowance is based upon the Company’s ongoing review of amounts outstanding, historical loss data, including delinquencies and write-offs, current and forecasted economic conditions and other relevant factors. Credit risk is partially mitigated by the Company’s ability to cancel the policy if the policyholder does not pay the premium and the Company writes off premiums receivable balances that are more than 90 days overdue.

The following table presents the balances of premiums receivable, net of the allowance for expected credit losses and changes in the allowance for expected credit losses for the three months ended March 31, 2024 and 2023.


		At and For the				At and For the
		Three Months Ended March 31, 2024				Three Months Ended March 31, 2023
		Accounts Receivable Net of Allowance for Expected Credit Losses		Allowance for Expected Credit Losses		Accounts Receivable Net of Allowance for Expected Credit Losses		Allowance for Expected Credit Losses
Balance, beginning of period	$	256,687	$	1,053	$	192,542	$	1,446
Current period change for expected credit losses				637				484
Writeoffs of uncollectable accounts receivable				(866)				(686)
Balance, end of period	$	269,491	$	824	$	205,560	$	1,244

Reinsurance recoverables include amounts due from reinsurers for both paid and unpaid losses. The Company cedes insurance to Commonwealth Automobile Reinsurers (“CAR”) and to other reinsurers. The Company has a property catastrophe excess of loss agreement and a casualty excess of loss agreement that qualify as reinsurance treaties and are designed to protect against large or unusual loss and loss adjustment expenses (“LAE”) activity. Reinsurance contracts do not relieve the Company from its obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company evaluates the financial condition of its reinsurers and monitors economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. The Company reports its reinsurance recoverables net of an allowance for estimated uncollectable reinsurance. A probability-of-default methodology which reflects current and forecasted economic conditions is used to estimate the amount of uncollectible reinsurance due to credit-related factors and the estimate is reported in an allowance for estimated uncollectible reinsurance. Amounts deemed to be uncollectible, including amounts due from known insolvent reinsurers, are written off against the allowance. Changes in the allowance, as well as any subsequent collections of amounts previously written off, are reported as part of losses and loss adjustment expenses.

The majority of the Company’s reinsurance recoverable on paid and unpaid losses is a result of our participation as a servicing carrier in the CAR Commercial Automobile Program, which represents 94% of the total reinsurance recoverable on paid and unpaid losses at March 31, 2024 and December 31, 2023. The remaining 6% of amounts due from reinsurers are related to our other excess of loss and quota share contracts. For amounts due under these contracts, the Company utilizes updated A.M. Best credit ratings on a quarterly basis to determine the allowance for expected credit losses. As of March 31, 2024 and December 31, 2023, most reinsurers under these programs are rated “A” or better by A.M. Best. Certain of the Company's reinsurance recoverables are collateralized by letters of credit, funds held or trust agreements. The Company’s analysis concludes that there are no expected credit losses at March 31, 2024 or December 31, 2023.

Table of Contents

7. Loss and Loss Adjustment Expense Reserves

The following table sets forth a reconciliation of beginning and ending reserves for losses and LAE, as shown in the Company’s consolidated financial statements for the periods indicated.


	Three Months Ended March 31,
	2024		2023
Reserves for losses and LAE at beginning of year	$	603,081	$	549,598
Less receivable from reinsurers related to unpaid losses and LAE		(112,623)		(93,394)
Net reserves for losses and LAE at beginning of year		490,458		456,204
Incurred losses and LAE, related to:
Current year		179,357		178,686
Prior years		(10,958)		(11,533)
Total incurred losses and LAE		168,399		167,153
Paid losses and LAE related to:
Current year		69,717		60,093
Prior years		106,848		89,025
Total paid losses and LAE		176,565		149,118
Net reserves for losses and LAE at end of period		482,292		474,239
Plus receivable from reinsurers related to unpaid losses and LAE		121,504		95,900
Reserves for losses and LAE at end of period	$	603,796	$	570,139

At the end of each period, the reserves were re-estimated for all prior accident years. The Company’s prior year reserves decreased by $10,958 and $11,533 for the three months ended March 31, 2024 and 2023, respectively, and resulted from re-estimations of prior years ultimate loss and LAE liabilities. The decreases in prior years reserves during the three months ended March 31, 2024 and 2023 are primarily composed of reductions in our retained automobile and retained homeowners lines reserves.

The Company's automobile lines of business reserves decreased for the three months ended March 31, 2024 and 2023, primarily due to fewer incurred but not yet reported claims than previously estimated and better than previously estimated severity on the Company’s established bodily injury and property damage case reserves. Due to the nature of the risks that the Company underwrites and has historically underwritten, management does not believe that it has an exposure to asbestos or environmental pollution liabilities.

Table of Contents

8. Commitments and Contingencies

Commitments

As part of the Company’s investment activity, we have committed $170,000 to investments in limited partnerships. The Company has contributed $138,984 to these commitments as of March 31, 2024. As of March 31, 2024, the remaining committed capital that could be called is $37,684, which includes potential recallable capital contributions.

Contingencies

Various claims, generally incidental to the conduct of normal business, are pending or alleged against the Company from time to time. In the opinion of management, based in part on the advice of legal counsel, the ultimate resolution of such claims will not have a material adverse effect on the Company’s consolidated financial statements. However, if estimates of the ultimate resolutions of those proceedings are revised, liabilities related to those proceedings could be adjusted in the near term.

On October 19, 2021, the Supreme Judicial Court of Massachusetts (the “SJC”) unanimously ruled that property and casualty insurers must compensate third-party claimants under property damage coverage, part 4 of the standard Massachusetts automobile insurance policy, 2008 edition (standard policy), for the inherent diminished value (“IDV”) that occurs when their vehicles are damaged in a crash. This ruling overturned a previous decision by the Massachusetts Superior Court (the “Superior Court”), which found that a Massachusetts auto insurance policy did not provide property damage coverage for inherent diminished value damages for third-party claimants. The SJC placed the burden of proof on the individual claimant by explicitly specifying that the claimant must establish that the vehicle has suffered IDV damages and the amount of IDV damages at issue. The SJC further ruled that an insurer’s previous denial of coverage for such damages could not serve as the basis for a claim of unfair business practices. On June 20, 2023, the Superior Court denied a motion brought by the plaintiffs seeking class certification. The plaintiffs have since filed a motion to amend the complaint, seeking to address the concerns raised by the Superior Court in denying their motion for class certification; Safety has opposed the motion to amend the complaint, which has yet to be heard or ruled on by the Superior Court. Based on the SJC’s rulings, at this time the Company does not expect any claims for IDV damages to be material, and therefore has not accrued for a specific loss contingency.

Massachusetts law requires that insurers licensed to do business in Massachusetts participate in the Massachusetts Insurers Insolvency Fund (“Insolvency Fund”). Members of the Insolvency Fund are assessed a proportionate share of the obligations and expenses of the Insolvency Fund in connection with an insolvent insurer. It is anticipated that there will be additional assessments from time to time relating to various insolvencies. Although the timing and amounts of any future assessments are not known, based upon existing knowledge, management’s opinion is that such future assessments are not expected to have a material effect upon the financial position of the Company.

9. Debt

On August 10, 2023, the Company extended its Revolving Credit Agreement (the “Credit Agreement”) with Citizens Bank, N.A. (“Citizens Bank”) to a maturity date of August 10, 2028. The Credit Agreement provides a $30,000 revolving credit facility with an accordion feature allowing for future expansion of the committed amount up to $50,000. Loans under the credit facility bear interest at the Company’s option at either the higher of Citizens Bank prime rate, the SOFR rate plus 1.25% per annum, or 0.5% above the federal funds rate. Interest only is payable prior to maturity.

The Company’s obligations under the credit facility are secured by pledges of its assets and the capital stock of its operating subsidiaries. The credit facility is guaranteed by the Company’s non-insurance company subsidiaries. The credit facility contains covenants including requirements to maintain minimum risk-based capital ratios and statutory surplus of Safety Insurance Company as well as limitations or restrictions on indebtedness, liens, and other matters. As of March 31, 2024, the Company was in compliance with all covenants. In addition, the credit facility includes customary events of default, including a cross-default provision permitting the lenders to accelerate the facility if the

Table of Contents

Company (i) defaults in any payment obligation under debt having a principal amount in excess of $10,000 or (ii) fails to perform any other covenant permitting acceleration of all such debt.

The Company had no amounts outstanding on its credit facility at March 31, 2024 and December 31, 2023. The credit facility commitment fee included in interest expense was computed at a rate of 0.20% and 0.25% per annum on the $30,000 commitment at March 31, 2024 and 2023, respectively.

The Company is a member of the FHLB-Boston. Membership in the FHLB-Boston allows the Company to borrow money at competitive interest rates provided the loan is collateralized by specific U.S. Government residential mortgage backed securities. At March 31, 2024, the Company has the ability to borrow $195,273 using eligible invested assets that would be used as collateral.

On March 17, 2020, the Company borrowed $30,000 from the FHLB-Boston for a term of five-years, bearing interest at a rate of 1.42%. Interest is payable monthly and the principal is due on the maturity date of March 17, 2025 but may be prepaid in whole or in part by the Company in advance with a minor penalty for prepayment.

On December 29, 2022, the Company borrowed $5,000 from the FHLB-Boston for a term of one-month, bearing interest at a rate of 4.34%. The interest and principal was paid on the maturity date of January 27, 2023.

On March 7, 2023, the Company borrowed $15,000 from FHLB-Boston for a term of one-month, bearing an interest rate of 4.92%. The interest and principal was paid on the maturity date of April 5, 2023.

On June 29, 2023, the Company borrowed $5,000 from FHLB-Boston for a term of one-week, bearing an interest rate of 5.2%. The interest and principal was paid on the maturity date of July 6, 2023.

The Company estimates the fair value of the FHLB-Boston loans by discounting cash flows using the interest rate stated in the loan agreement, which is an observable input. As such, the loans are categorized as Level 2 within the fair value hierarchy. The fair value of the outstanding loans was $30,381 and $30,468 at March 31, 2024 and December 31, 2023, respectively. The loans are fully collateralized by specific U.S. Government residential mortgage-backed securities with a fair value of $51,180 and $53,503 at March 31, 2024 and December 31, 2023, respectively. The borrowing is outstanding from the FHLB-Boston at March 31, 2024 and December 31, 2023.

Interest expense on the FHLB-Boston borrowing was $108 and $155 for the three months ended March 31, 2024 and 2023, respectively.

10. Income Taxes

Federal income tax expense for the three months ended March 31, 2024 and 2023 has been computed using estimated effective tax rates. These rates are revised, if necessary, at the end of each successive interim period to reflect the current estimates of the annual effective tax rates.

The Company believes that the positions taken on its income tax returns for open tax years will be sustained upon examination by the Internal Revenue Service. Therefore, the Company has not recorded any liability for uncertain tax positions under ASC 740, Income Taxes.

During the three months ended March 31, 2024, there were no material changes to the amount of the Company’s unrecognized tax benefits or to any assumptions regarding the amount of its ASC 740 liability.

All tax years prior to 2020 are closed. There are no current examinations ongoing.

In the Company’s opinion, adequate tax liabilities have been established for all open years. However, the amount of these tax liabilities could be revised in the near term if estimates of the Company’s ultimate liability are revised.

Table of Contents

11. Share Repurchase Program

On February 23, 2022, the Board of Directors approved a share repurchase program of up to $50,000 of the Company’s outstanding common shares. The Board of Directors has cumulatively authorized increases to the existing share repurchase program of up to $200,000 of its outstanding common shares. Under the program, the Company may repurchase shares of its common stock for cash in public or private transactions, in the open market or otherwise. The timing of such repurchases and actual number of shares repurchased will depend on a variety of factors including price, market conditions and applicable regulatory and corporate requirements. The program does not require the Company to repurchase any specific number of shares and it may be modified, suspended or terminated at any time without prior notice.

No share purchases were made by the Company under the program during the three months ended March 31, 2024 and 2023. As of December 31, 2023, the Company had purchased 3,215,690 shares at a cost of $155,240.

12. Leases

The Company has various non-cancelable, long-term operating leases, the largest of which are for office space including the corporate headquarters, VIP claims centers and law offices. Other operating leases consist of auto leases and various office equipment. The Company has no finance leases. Our leases have remaining lease terms of one year to eight years, some of which include options to extend the leases for up to five years.

In calculating lease liabilities the Company uses its incremental borrowing rate as of the application date based on original lease terms. The components of lease expense were as follows:


	Three Months Ended March 31,
		2024		2023
Operating lease cost	$	1,013	$	1,004

Other information related to leases was as follows:


	Three Months Ended March 31,
		2024		2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,165	$	1,111
Weighted average remaining lease term
Operating leases		4.58 Years		5.53 Years
Weighted average discount rate
Operating leases		2.48%		2.39%

Maturities of lease liabilities were as follows:


	Operating Leases
2024	$	3,452
2025		4,211
2026		3,980
2027		3,973
2028		3,906
Thereafter		—
Total lease payments		19,522
Less imputed interest		(444)
Total	$	19,078

Table of Contents

13. Subsequent Events

The Company has evaluated subsequent events for recognition or disclosure in the consolidated financial statements filed on Form 10-Q with the SEC and no events have occurred that require recognition or disclosure.

Table of Contents

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our accompanying consolidated financial statements and notes thereto, which appear elsewhere in this document. In this discussion, all dollar amounts are presented in thousands, except share and per share data.

The following discussion contains forward-looking statements. We intend statements which are not historical in nature to be, and are hereby identified as “forward-looking statements” to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In addition, the Company’s senior management may make forward-looking statements orally to analysts, investors, the media and others. This safe harbor requires that we specify important factors that could cause actual results to differ materially from those contained in forward-looking statements made by or on behalf of us. We cannot promise that our expectations in such forward-looking statements will turn out to be correct. Our actual results could be materially different from and worse than our expectations. See “Forward-Looking Statements” below for specific important factors that could cause actual results to differ materially from those contained in forward-looking statements.

Executive Summary and Overview

In this discussion, “Safety” refers to Safety Insurance Group, Inc. and “our Company,” “we,” “us” and “our” refer to Safety Insurance Group, Inc. and its consolidated subsidiaries. Our subsidiaries consist of Safety Insurance Company (“Safety Insurance”), Safety Indemnity Insurance Company (“Safety Indemnity”), Safety Property and Casualty Insurance Company (“Safety P&C”), Safety Northeast Insurance Company (“Safety Northeast”), Safety Northeast Insurance Agency, Inc. (“SNIA”), and Safety Management Corporation (“SMC”), which is SNIA’s holding company.

We are a leading provider of private passenger automobile, commercial automobile, homeowners and commercial other-than-auto insurance in Massachusetts. In addition to private passenger automobile insurance (which represented 59.3% of our direct written premiums in 2023), we offer a portfolio of other insurance products, including commercial automobile (16.0% of 2023 direct written premiums), homeowners (19.8% of 2023 direct written premiums) and dwelling fire, umbrella and business owner policies (totaling 4.9% of 2023 direct written premiums). Operating exclusively in Massachusetts, New Hampshire, and Maine through our insurance company subsidiaries, Safety Insurance, Safety Indemnity, Safety P&C, and Safety Northeast (together referred to as the “Insurance Subsidiaries”), we have established strong relationships with independent insurance agents, who numbered 834 in 1,090 locations throughout these three states at December 31, 2023. We have used these relationships and our extensive knowledge of the Massachusetts market to become the third largest private passenger automobile carrier and the second largest commercial automobile insurance carrier in Massachusetts, capturing an approximate 8.7% and 12.7% share, respectively, of the Massachusetts private passenger and commercial automobile markets in 2023 according to statistics compiled by the Commonwealth Automobile Reinsurers (“CAR”) based on automobile exposures. We are also the fourth largest homeowners insurance carrier in Massachusetts with a 6.2% share of the Massachusetts homeowners insurance market.

A.M. Best, which rates insurance companies based on factors of concern to policyholders, currently assigns Safety Insurance an "A (Excellent)" rating. Our "A" rating was reaffirmed by A.M. Best on June 15, 2023.

Table of Contents

Our Insurance Subsidiaries began writing insurance in New Hampshire during 2008 and in Maine in 2016. In November 2020, we formed a fourth insurance subsidiary, Safety Northeast, which became licensed to write insurance products in Massachusetts. The table below shows the amount of direct written premiums written in each state during the three months ended March 31, 2024 and 2023.


	Three Months Ended March 31,
Direct Written Premiums	2024		2023
Massachusetts	$	254,351	$	207,952
New Hampshire		10,759		8,612
Maine		2,229		1,288
Total	$	267,339	$	217,852

Recent Trends and Events

Direct and Net Written Premiums. For the three months ended March 31, 2024, the Company achieved its sixth consecutive quarter of double-digit growth in direct and net written premiums. For the three months ended March 31, 2024, direct written premium growth and net written premium growth were 22.7% and 23.4%, respectively. The increase in premium is driven by new business production and rate increases. For the three months ended March 31, 2024, the Company achieved policy count growth across all lines of business, including 12.4%, 2.3% and 10.9% in Private Passenger Automobile, Commercial Automobile and Homeowners lines, respectively, compared to the same period in 2023. Additionally, for the three months ended March 31, 2024, average written premium per policy increased 13.5%, 6.4% and 7.4% in Private Passenger Automobile, Commercial Automobile and Homeowners lines, respectively, compared to the same period in 2023.

Losses and Loss Adjustment Expenses. Losses and loss adjustment expenses incurred for the three months ended March 31, 2024 increased by $1,246 or 0.7%, to $168,399 from $167,153 for the comparable period. The slight increase is driven by larger policy counts offset by improved results in our homeowners lines. Our losses and loss adjustment expenses ratio for the three months ended March 31, 2024 improved to 71.3% from 87.2% from the comparable 2023 period. The prior year losses and loss adjustment expenses ratio was impacted by a severe weather event, totaling $32,100 of losses and loss adjustment expenses for the three months ended March 31, 2023.

Non-generally accepted accounting principles (“non-GAAP”) operating income, as defined below, was $13,746 for the three months ended March 31, 2024, compared to non-GAAP operating loss of $12,796 for the comparable 2023 period. The increase in Non-GAAP operating income was primarily the result of an increase in net earned premiums compared to the prior period. Non-GAAP operating income for the quarter ended March 31, 2024 was $0.93 per diluted share, compared to non-GAAP operating loss of $0.87 per diluted share for the comparable 2023 period.

The following rate changes have been filed and approved by the insurance regulators of Massachusetts, New Hampshire and Maine in 2024 and 2023. Our Massachusetts private passenger automobile rates include a 13% commission rate for agents.


Line of Business	Effective Date	Rate Change
Massachusetts Commercial Automobile	May 1, 2024	6.3%
New Hampshire Private Passenger Automobile	April 1, 2024	3.4%
Massachusetts Private Passenger Automobile	January 1, 2024	3.5%
New Hampshire Commercial Automobile	November 1, 2023	7.9%
New Hampshire Homeowners	October 1, 2023	6.0%
Maine Private Passenger Automobile	October 1, 2023	7.3%
New Hampshire Private Passenger Automobile	September 1, 2023	6.5%
Massachusetts Homeowners	August 1, 2023	3.9%
Massachusetts Private Passenger Automobile	July 1, 2023	4.3%
Massachusetts Commercial Automobile	May 1, 2023	4.0%

Table of Contents

Insurance Ratios

The property and casualty insurance industry uses the combined ratio as a measure of underwriting profitability. The combined ratio is the sum of the loss ratio (losses and loss adjustment expenses incurred as a percent of net earned premiums) plus the expense ratio (underwriting and other expenses as a percent of net earned premiums, calculated on a Generally Accepted Accounting Principles (“GAAP”) basis). The combined ratio reflects only underwriting results and does not include income from investments or finance and other service income. Underwriting profitability is subject to significant fluctuations due to competition, catastrophic events, weather, economic and social conditions, and other factors.

Our GAAP insurance ratios are outlined in the following table.


	Three Months Ended March 31,
	2024		2023
GAAP ratios:
Loss ratio	71.3	%	87.2	%
Expense ratio	30.6		31.3
Combined ratio	101.9	%	118.5	%

Share-Based Compensation

On March 24, 2022, the Company’s Board of Directors adopted the Amended and Restated Safety Insurance Group, Inc. 2018 Long-Term Incentive Plan (the “Amended 2018 Plan”), which was subsequently approved by our shareholders at the 2022 Annual Meeting of Shareholders. The Amended 2018 Plan increases the share pool limit by adding 350,000 common shares to the previously adopted Safety Insurance Group, Inc. 2018 Long-Term Incentive Plan. The Amended 2018 Plan enables the grant of stock awards, performance shares, cash-based performance units, other stock-based awards, stock options, stock appreciation rights, and stock unit awards, each of which may be granted separately or in tandem with other awards. Eligibility to participate includes officers, directors, employees and other individuals who provide bona fide services to the Company. The Amended 2018 Plan supersedes the Company’s 2002 Management Omnibus Incentive Plan (“the 2002 Incentive Plan”).

A summary of share based awards granted under the Incentive Plan during the three months ended March 31, 2024 is as follows:


Type of		Number of		Fair
Equity		Awards		Value per
Awarded	Effective Date	Granted		Share (1)	Vesting Terms
RS - Service	February 27, 2024	31,221	$	85.61	3 years, 30%-30%-40%
RS - Performance	February 27, 2024	25,390	$	85.61	3 years, cliff vesting (3)
RS	February 27, 2024	7,000	$	85.61	No vesting period (2)

(1)	The fair value per share of the restricted stock grant is equal to the closing price of our common stock on the grant date.

(2)	Board of Director members must maintain stock ownership equal to at least four times their annual retainer. This requirement must be met within five years of becoming a director.

(3)

The shares represent performance-based restricted shares award. Vesting of these shares is dependent upon the attainment of pre-established performance objectives, and any difference between shares granted and shares earned at the end of the performance period will be reported at the conclusion of the performance period.

Table of Contents

Reinsurance

We reinsure with other insurance companies a portion of our potential liability under the policies we have underwritten, thereby protecting us against an unexpectedly large loss or a catastrophic occurrence that could produce large losses, primarily in our homeowners line of business. We are selective in choosing our reinsurers, seeking only those companies that we consider to be financially stable and adequately capitalized. In an effort to minimize exposure to the insolvency of a reinsurer, we continually evaluate and review the financial condition of our reinsurers. Most of our other reinsurers have an A.M. Best rating of “A+” (Superior) or “A” (Excellent).

We maintain reinsurance coverage to help lessen the effect of losses from catastrophic events, maintaining coverage during 2024 that protects us in the event of a "124-year storm" (that is, a storm of a severity expected to occur once in a 124-year period). We use various software products to measure our exposure to catastrophe losses and the probable maximum loss to us for catastrophe losses such as hurricanes. The models include estimates for our share of the catastrophe losses generated in the residual market for property insurance by the Massachusetts Property Insurance Underwriting Association ("FAIR Plan").

For 2024, we have purchased three layers of excess catastrophe reinsurance providing $615,000 of coverage for property losses in excess of $75,000 up to a maximum of $690,000. Our reinsurers’ co-participation is 80.0% of $75,000 for the 1st layer, 80.0% of $250,000 for the 2nd layer and 80.0% of $290,000 for the 3rd layer.

We also have casualty excess of loss reinsurance for large casualty losses occurring in our automobile, homeowners, dwelling fire, and business owner lines of business in excess of $2,000 up to a maximum of $10,000. We have property excess of loss reinsurance coverage for large property losses, with coverage in excess of $2,500 up to a maximum of $25,000, for our homeowners, and business owners. In addition, we have liability excess of loss reinsurance for umbrella large losses in excess of $1,000 up to a maximum of $10,000. We also have various reinsurance agreements with Hartford Steam Boiler Inspection and Insurance Company, of which the primary contract is a quota share agreement under which we cede 100% of the premiums and losses for the equipment breakdown coverage under our business owner policies and commercial package policies.

We are a participant in CAR, a state-established body that runs the residual market reinsurance programs for commercial automobile insurance in Massachusetts under which premiums, expenses, losses and loss adjustment expenses on ceded business are shared by all insurers writing automobile insurance in Massachusetts. We also participate in the FAIR Plan in which premiums, expenses, losses and loss adjustment expenses on homeowners business that cannot be placed in the voluntary market are shared by all insurers writing homeowners insurance in Massachusetts. As a response to the exposure to catastrophe losses, on July 1, 2023, the FAIR Plan purchased $1,600,000 of catastrophe reinsurance for property losses with retention of $100,000.

At March 31, 2024, we had $144,560 recoverable from CAR comprised of loss adjustment expense reserves, unearned premiums and reinsurance recoverable.

Non-GAAP Measures

Management has included certain non-GAAP financial measures in presenting the Company’s results. Management believes that these non-GAAP measures better explain the Company’s results of operations and allow for a more complete understanding of the underlying trends in the Company’s business. These measures should not be viewed as a substitute for those determined in accordance with GAAP. In addition, our definitions of these items may not be comparable to the definitions used by other companies.

Non-GAAP operating income and non-GAAP operating income per diluted share consist of our GAAP net income adjusted by the net realized gains (losses) on investments, changes in net unrealized gains on equity securities, credit loss benefit (expense) and taxes related thereto. Net income (loss) and earnings (loss) per diluted share are the GAAP financial measures that are most directly comparable to non-GAAP operating income and non-GAAP operating

Table of Contents

income per diluted share, respectively. A reconciliation of the GAAP financial measures to these non-GAAP measures is included in the financial highlights below.

Results of Operations

Three Months Ended March 31, 2024 compared to Three Months Ended March 31, 2023

The following table shows certain of our selected financial results.


	Three Months Ended March 31,
	2024		2023
Direct written premiums	$	267,339	$	217,852
Net written premiums	$	250,295	$	202,884
Net earned premiums	$	236,053	$	191,735
Net investment income		15,231		13,654
Earnings from partnership investments		1,772		2,166
Net realized gains on investments		492		733
Change in net unrealized gains on equity securities		7,665		770
Credit loss expense		(142)		(922)
Commission income		1,808		1,483
Finance and other service income		5,354		4,140
Total revenue		268,233		213,759
Losses and loss adjustment expenses		168,399		167,153
Underwriting, operating and related expenses		72,267		60,033
Other expense		1,837		1,670
Interest expense		123		210
Total expenses		242,626		229,066
Income (loss) before income taxes		25,607		(15,307)
Income tax expense (benefit)		5,529		(2,970)
Net income (loss)	$	20,078	$	(12,337)
Earnings (loss) per weighted average common share:
Basic	$	1.36	$	(0.84)
Diluted	$	1.36	$	(0.84)
Cash dividends paid per common share	$	0.90	$	0.90

Reconciliation of Net Income (Loss) to Non-GAAP Operating Income (Loss)

Net income (loss)	$	20,078	$	(12,337)
Exclusions from net income:
Net realized gains on investments		(492)		(733)
Change in net unrealized gains on equity securities		(7,665)		(770)
Credit loss expense		142		922
Income tax expense on exclusions from net income		1,683		122
Non-GAAP Operating income (loss)	$	13,746	$	(12,796)

Net income per diluted share	$	1.36	$	(0.84)
Exclusions from net income (loss):
Net realized gains on investments		(0.03)		(0.05)
Change in net unrealized gains on equity securities		(0.52)		(0.05)
Credit loss expense		0.01		0.06
Income tax benefit expense on exclusions from net income		0.11		0.01
Non-GAAP Operating income (loss) per diluted share	$	0.93	$	(0.87)

Direct Written Premiums. Direct written premiums for the three months ended March 31, 2024 increased by $49,487, or 22.7%, to $267,339 from $217,852 for the comparable 2023 period. The increase in direct written premium is the result of new business production and rate increases.

Net Written Premiums. Net written premiums for the three months ended March 31, 2024 increased by $47,411, or 23.4%, to $250,295 from $202,884 for the comparable 2023 period. The increase was primarily due to the factors that increased direct written premiums.

Table of Contents

Net Earned Premiums. Net earned premiums for the three months ended March 31, 2024 increased by $44,318, or 23.1%, to $236,053 from $191,735 for the comparable 2023 period.

The effect of reinsurance on net written and net earned premiums is presented in the following table.


	Three Months Ended March 31,
	2024		2023
Written Premiums
Direct	$	267,339	$	217,852
Assumed		9,438		7,230
Ceded		(26,482)		(22,198)
Net written premiums	$	250,295	$	202,884

Earned Premiums
Direct	$	251,884	$	205,555
Assumed		8,968		7,913
Ceded		(24,799)		(21,733)
Net earned premiums	$	236,053	$	191,735

Net Investment Income. Net investment income for the three months ended March 31, 2024 increased by $1,577, or 11.5%, to $15,231 from $13,654 for the comparable 2023 period. The increase is a result of increases in interest rates on our fixed maturity portfolio as compared to the prior year. Net effective annualized yield on the investment portfolio was 4.3% for the three months ended March 31, 2024 compared to 3.8% for the three months ended March 31, 2023. The investment portfolio’s duration was 3.5 years at March 31, 2024 and 3.6 years at December 31, 2023, respectively.

Earnings from Partnership Investments. Earnings from partnership investments was $1,772 for the three months ended March 31, 2024 compared to $2,166 for the comparable 2023 period. The three month earnings reflect a decrease in investment appreciation and timing of cash proceeds received compared to the prior year. Timing and generation of these returns on capital can vary based on the results and transactions of the underlying partnerships.

Net Realized Gains on Investments. Net realized gains on investments was $492 for the three months ended March 31, 2024 compared to $733 for the comparable 2023 period. The decrease in net realized gains is driven by an increase in realized losses.

As of March 31, 2024

Cost or

Allowance for

Gross Unrealized

Estimated

Amortized

Expected Credit

Fair

Cost

Losses

Gains

Losses (3)

Value

U.S. Treasury securities

2,420

—

(122)

2,302

Obligations of states and political subdivisions

38,576

—

202

(2,393)

36,385

Residential mortgage-backed securities (1)

266,625

—

982

(25,445)

242,162

Commercial mortgage-backed securities

150,621

—

180

(14,240)

136,561

Other asset-backed securities

59,192

—

145

(2,488)

56,849

Corporate and other securities

601,682

(1,349)

2,783

(33,819)

569,297

Subtotal, fixed maturity securities

1,119,116

(1,349)

4,296

(78,507)

1,043,556

Equity securities (2)

192,721

—

30,729

(6,852)

216,598

Other invested assets (4)

138,270

—

138,270

Totals

1,450,107

(1,349)

35,025

(85,359)

1,398,424

(1)Residential mortgage-backed securities consists primarily of obligations of U.S. Government agencies including collateralized mortgage obligations issued, guaranteed and/or insured by the following issuers: Government National Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage Association (FNMA) and the Federal Home Loan Bank (FHLB).

(2)Equity securities include common stock, preferred stock, mutual funds and interests in mutual funds held to fund the Company’s executive deferred compensation plan.

Table of Contents

(3)Our investment portfolio included 855 securities in an unrealized loss position at March 31, 2024.

(4)Other invested asset accounted for under the equity method which approximated fair value.

The composition of our fixed income security portfolio by Moody’s rating was as follows:


	As of March 31, 2024
		Estimated
		Fair Value	Percent
U.S. Treasury securities and obligations of U.S. Government agencies	$	242,161	23.2	%
Aaa/Aa		207,025	19.8
A		220,569	21.1
Baa		196,700	18.8
Ba		44,315	4.2
B		82,063	7.9
Caa/Ca		5,046	0.5
Not rated		45,677	4.5
Total	$	1,043,556	100.0	%

Ratings are generally assigned upon the issuance of the securities and are subject to revision on the basis of ongoing evaluations. Ratings in the table are as of the date indicated.

As of March 31, 2024, our portfolio of fixed maturity investments was comprised principally of investment grade corporate fixed maturity securities, U.S. government and agency securities, and asset-backed securities. The portion of our non-investment grade portfolio of fixed maturity investments is primarily comprised of variable rate secured and senior bank loans and high yield bonds.

The following table illustrates the gross unrealized losses included in our investment portfolio and the fair value of those securities, aggregated by investment category. The table also illustrates the length of time that they have been in a continuous unrealized loss position as of March 31, 2024.

As of March 31, 2024

Less than 12 Months

12 Months or More

Total

Estimated

Unrealized

Estimated

Unrealized

Estimated

Unrealized

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

U.S. Treasury securities

—

1,700

122

1,700

122

Obligations of states and political subdivisions

3,443

29,243

2,383

32,686

2,393

Residential mortgage-backed securities

25,451

299

179,261

25,146

204,712

25,445

Commercial mortgage-backed securities

3,693

122

127,598

14,118

131,291

14,240

Other asset-backed securities

23,328

209

24,231

2,279

47,559

2,488

Corporate and other securities

60,976

1,712

361,771

32,107

422,747

33,819

Subtotal, fixed maturity securities

116,891

2,352

723,804

76,155

840,695

78,507

Equity securities

24,912

2,095

27,805

4,757

52,717

6,852

Total temporarily impaired securities

141,803

4,447

751,609

80,912

893,412

85,359

Specific qualitative analysis was also performed for securities appearing on our “Watch List,” if any. Qualitative analysis considered such factors as the financial condition and the near term prospects of the issuer, whether the debtor is current on its contractually obligated interest and principal payments, changes to the rating of the security by a rating agency and the historical volatility of the fair value of the security.

Table of Contents

For information regarding fair value measurements of our investment portfolio, refer to Item 1-Financial Statements, Note 5, Investments, of this Form 10-Q.

Commission Income: Commission income includes revenues from new and renewal commissions paid by insurance carriers, which we recognize when earned. Commission income was $1,808 and $1,483 for the three months ended March 31, 2024 and 2023, respectively.

Finance and Other Service Income. Finance and other service income includes revenues from premium installment charges, which we recognize when earned, and other miscellaneous income and fees. Finance and other service income for the three months ended March 31, 2024 increased by $1,214, or 29.3%, to $5,354 from $4,140 for the comparable 2023 period. The increase is primarily driven by the increase in policy counts and changes to our fee assessment policies.

Losses and Loss Adjustment Expenses. Loss and loss adjustment expenses incurred for the three months ended March 31, 2024 increased by $1,246, or 0.7%, to $168,399 from $167,153 for the comparable 2023 period. The slight increase is driven by larger policy counts offset by improved results in our homeowners lines.

Our GAAP loss ratio for the three months ended March 31, 2024 decreased to 71.3% from 87.2% for the comparable 2023 period. Our GAAP loss ratio excluding loss adjustment expenses for the three months ended March 31, 2024 was 62.2% compared to 76.2% for the comparable 2023 period. Total prior year favorable development included in the pre-tax results for the three months ended March 31, 2024 was $10,958 compared to $11,533 for the comparable 2023 period.

Underwriting, Operating and Related Expenses. Underwriting, operating and related expenses for the three months ended March 31, 2024 increased by $12,234, or 20.4%, to $72,267 from $60,033 for the comparable 2023 period. Our GAAP expense ratio for the three months ended March 31, 2024 decreased to 30.6% from 31.3% for the comparable 2023 period. The increase is driven by an increase in contingent commission expenses.

Interest Expense. Interest expense was $123 and $210 for the three months ended March 31, 2024 and 2023. The credit facility commitment fee included in interest expense was $15 and $19 for the three months ended March 31, 2024 and 2023, respectively.

Income Tax Expense. Our effective tax rate was 21.6% and 19.4% for the quarters ended March 31, 2024 and 2023, respectively. The effective tax rate for the quarter ended March 31, 2024 was higher than the statutory rate primarily due to the effects of the change in unrealized gains on equity securities. The effective tax rate for the quarter ended March 31, 2023 was lower than the statutory rate primarily due to the effects of the change in unrealized gains on equity securities and the impact of stock-based compensation.

Net Income (Loss). Net income for the three months ended March 31, 2024 was $20,078 compared to net loss of $12,337 for the comparable 2023 period.

Non-GAAP Operating Income. Non-GAAP operating income as defined above was $13,746 for the three months ended March 31, 2024 compared to non-GAAP operating loss of $12,796 for the comparable 2023 period. The increase in Non-GAAP operating income was primarily the result of an increase in net earned premiums compared to the prior year.

Liquidity and Capital Resources

As a holding company, Safety’s assets consist primarily of the stock of our direct and indirect subsidiaries. Our principal source of funds to meet our obligations and pay dividends to shareholders, therefore, is dividends and other permitted payments from our subsidiaries, principally Safety Insurance. Safety is the borrower under our credit facility.

Table of Contents

Safety Insurance’s sources of funds primarily include premiums received, investment income, and proceeds from sales and redemptions of investments. Safety Insurance’s principal uses of cash are the payment of claims, operating expenses and taxes, the purchase of investments, and the payment of dividends to Safety.

Net cash used for operating activities was $21,135 and $12,892 during the three months ended March 31, 2024 and 2023, respectively. Our operations typically generate positive cash flows from operations as most premiums are received in advance of the time when claim and benefit payments are required. Positive operating cash flows are expected in the future to meet our liquidity requirements.

Net cash provided by investing activities was $27,399 and $6,655 during the three months ended March 31, 2024 and 2023, respectively. Fixed maturities, equity securities, and other invested assets purchased were $50,199 for the three months ended March 31, 2024 compared to $43,292 for the comparable prior year period. Proceeds from maturities, redemptions, calls and sales, of securities were $81,665 during the three months ended March 31, 2024 compared to $50,561 for the comparable prior year period.

Net cash used for financing activities was $13,615 and $3,747 during the three months ended March 31, 2024 and 2023, respectively. The net cash used for financing activities during the three months ended March 31, 2024 consisted of dividend payments to shareholders.

The Insurance Subsidiaries maintain a high degree of liquidity within their respective investment portfolios in fixed maturity and equity securities. We do not anticipate the need to sell these securities to meet the Insurance Subsidiaries cash requirements. We expect the Insurance Subsidiaries to generate sufficient operating cash to meet all short-term and long-term cash requirements. However, there can be no assurance that unforeseen business needs or other items will not occur causing us to have to sell securities before their values fully recover; thereby causing us to recognize additional impairment charges in that time period.

Credit Facility

For information regarding our Credit Facility, please refer to Item 1- Financial Statements, Note 9, Debt, of this Form 10-Q.

Recent Accounting Pronouncements

There are no recent accounting pronouncements that are applicable to the Company.

Regulatory Matters

Our Insurance Subsidiaries are subject to various regulatory restrictions that limit the maximum amount of dividends available to be paid to their parent without prior approval of the Commissioner of the Division of Insurance of Massachusetts (the “Commissioner”). The Massachusetts statute limits the dividends an insurer may pay in any twelve-month period, without the prior permission of the Commissioner, to the greater of (i) 10% of the insurer’s surplus as of the preceding December 31 or (ii) the insurer’s net income for the twelve-month period ending the preceding December 31, in each case determined in accordance with statutory accounting practices. Our insurance company subsidiaries may not declare an “extraordinary dividend” (defined as any dividend or distribution that, together with other distributions made within the preceding twelve months, exceeds the limits established by Massachusetts statute) until thirty days after the Commissioner has received notice of the intended dividend and has not objected. As historically administered by the Commissioner, this provision requires the Commissioner’s prior approval of an extraordinary dividend. Under Massachusetts law, an insurer may pay cash dividends only from its unassigned funds, also known as earned surplus, and the insurer’s remaining surplus must be both reasonable in relation to its outstanding liabilities and adequate to its financial needs. At December 31, 2023, the statutory surplus of Safety Insurance was $744,904, and its statutory net income for 2023 was $4,022. As a result, a maximum of $74,490 is available in 2024 for such dividends without prior approval of the Commissioner. As a result of this Massachusetts statute, the Insurance Subsidiaries had restricted net assets in the amount of $670,414 at December 31, 2023. During the three months ended March 31, 2024, Safety Insurance paid dividends to Safety of $12,610.

Table of Contents

The maximum dividend permitted by law is not indicative of an insurer’s actual ability to pay dividends, which may be constrained by business and regulatory considerations, such as the impact of dividends on surplus, which could affect an insurer’s ratings or competitive position, the amount of premiums that can be written and the ability to pay future dividends.

Since the initial public offering of its common stock in November 2002, the Company has paid regular quarterly dividends to shareholders of its common stock. Quarterly dividends paid during 2024 were as follows:


					Total
Declaration	Record	Payment	Dividend per		Dividends Paid
Date	Date	Date	Common Share		and Accrued
February 15, 2024	March 1, 2024	March 15, 2024	$	0.90	$	13,280

On May 8, 2024, our Board approved and declared a quarterly cash dividend of $0.90 per share which will be paid on June 14, 2024 to shareholders of record on June 3, 2024. We plan to continue to declare and pay quarterly cash dividends in 2024, depending on our financial position and the regularity of our cash flows.

On February 23, 2022, the Board of Directors approved a share repurchase program of up to $50,000 of the Company’s outstanding common shares. As of March 31, 2024, the Board of Directors has cumulatively authorized increases to the existing share repurchase program of up to $200,000 of its outstanding common shares. Under the program, the Company may repurchase shares of its common stock for cash in public or private transactions, in the open market or otherwise. The timing of such repurchases and actual number of shares repurchased will depend on a variety of factors including price, market conditions and applicable regulatory and corporate requirements. The program does not require us to repurchase any specific number of shares and may be modified, suspended or terminated at any time without prior notice. No share repurchases were made by the Company under the program during the three months ended March 31, 2024. As of March 31, 2024 and December 31, 2023, the Company had purchased 3,215,690 shares of common stock at a cost of $155,240.

Under the program, Safety may repurchase shares of its common stock for cash in public or private transactions, in the open market or otherwise, at management’s discretion. The timing of such repurchases and actual number of shares repurchased will depend on a variety of factors including price, market conditions and applicable regulatory and corporate requirements. The program does not require Safety to repurchase any specific number of shares and may be modified, suspended or terminated at any time without prior notices.

Management believes that the current level of cash flow from operations provides us with sufficient liquidity to meet our operating needs over the next 12 months. We expect to be able to continue to meet our operating needs after the next 12 months from internally generated funds. Since our ability to meet our obligations in the long term (beyond such twelve-month period) is dependent upon such factors as market changes, insurance regulatory changes and economic conditions, no assurance can be given that the available net cash flow will be sufficient to meet our operating needs. We expect that we would need to borrow or issue capital stock if we needed additional funds, for example, to pay for an acquisition or a significant expansion of our operations. There can be no assurance that sufficient funds for any of the foregoing purposes would be available to us at such time.

Risk-Based Capital Requirements

The NAIC has adopted a formula and model law to implement risk-based capital requirements for most property and casualty insurance companies, which are designed to determine minimum capital requirements and to raise the level of protection that statutory surplus provides for policyholder obligations. Under Massachusetts law, insurers having less total adjusted capital than that required by the risk-based capital calculation will be subject to varying degrees of regulatory action, depending on the level of capital inadequacy. The risk-based capital law provides for four levels of regulatory action. The extent of regulatory intervention and action increases as the level of total adjusted capital to risk-based capital falls. As of December 31, 2023, the Insurance Subsidiaries had total capital of $744,904, which is in excess of amounts requiring company or regulatory action at any prescribed risk-based capital action level. Minimum statutory capital and surplus, or company action level risk-based capital, was $231,882 at December 31, 2023.

Table of Contents

Off-Balance Sheet Arrangements

We have no material obligations under a guarantee contract meeting the characteristics identified in Accounting Standards Codification (“ASC”) 460, Guarantees. We have no material retained or contingent interests in assets transferred to an unconsolidated entity. We have no material obligations, including contingent obligations, under contracts that would be accounted for as derivative instruments. We have no obligations, including contingent obligations, arising out of a variable interest in an unconsolidated entity held by, and material to, us, where such entity provides financing, liquidity, market risk or credit risk support to, or engages in leasing, hedging or research and development services with us. We have no direct investments in real estate and no holdings of mortgages secured by commercial real estate. Accordingly, we have no material off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Loss and Loss Adjustment Expense Reserves

Significant periods of time can elapse between the occurrence of an insured loss, the reporting to us of that loss and our final payment of that loss. To recognize liabilities for unpaid losses, we establish reserves as balance sheet liabilities. Our reserves represent estimates of amounts needed to pay reported and estimated losses incurred but not yet reported (“IBNR”) and the expenses of investigating and paying those losses, or loss adjustment expenses. Every quarter, we review our previously established reserves and adjust them, if necessary.

When a claim is reported, claims personnel establish a “case reserve” for the estimated amount of the ultimate payment. The amount of the reserve is primarily based upon an evaluation of the type of claim involved, the circumstances surrounding each claim and the policy provisions relating to the loss. The estimate reflects the informed judgment of such personnel based on general insurance reserving practices and on the experience and knowledge of the claims person. During the loss adjustment period, these estimates are revised as deemed necessary by our claims department based on subsequent developments and periodic reviews of the cases. When a claim is closed with or without a payment, the difference between the case reserve and the settlement amount creates a reserve deficiency if the payment exceeds the case reserve or a reserve redundancy if the payment is less than the case reserve.

In accordance with industry practice, we also maintain reserves for IBNR. IBNR reserves are determined in accordance with commonly accepted actuarial reserving techniques on the basis of our historical information and experience. We review and make adjustments to incurred but not yet reported reserves quarterly. In addition, IBNR reserves can also be expressed as the total loss reserves required less the case reserves on reported claims.

When reviewing reserves, we analyze historical data and estimate the impact of various loss development factors, such as our historical loss experience and that of the industry, trends in claims frequency and severity, our mix of business, our claims processing procedures, legislative enactments, judicial decisions, legal developments in imposition of damages, and changes and trends in general economic conditions, including the effects of inflation. A change in any of these factors from the assumption implicit in our estimate can cause our actual loss experience to be better or worse than our reserves, and the difference can be material. There is no precise method, however, for evaluating the impact of any specific factor on the adequacy of reserves, because the eventual development of reserves is affected by many factors.

In estimating all our loss reserves, we follow the guidance prescribed by ASC 944, Financial Services – Insurance.

Table of Contents

Management determines our loss and LAE reserves estimate based upon the analysis of our actuaries. A reasonable estimate is derived by selecting a point estimate within a range of indications as calculated by our actuaries using generally accepted actuarial techniques. The key assumption in most actuarial analysis is that past patterns of frequency and severity will repeat in the future unless a significant change in the factors described above takes place.

Our key factors and resulting assumptions are the ultimate frequency and severity of claims, based upon the most recent ten years of claims reported to the Company, and the data CAR reports to us to calculate our share of the residual market, as of the date of the applicable balance sheet. For each accident year and each coverage within a line of business our actuaries calculate the ultimate losses incurred. Our total reserves are the difference between the ultimate losses incurred and the cumulative loss and loss adjustment payments made to date. Our IBNR reserves are calculated as the difference between our total reserves and the outstanding case reserves at the end of the accounting period. To determine ultimate losses, our actuaries calculate a range of indications and select a point estimation using such actuarial techniques as:

●

Paid Loss Indications: This method projects ultimate loss estimates based upon extrapolations of historic paid loss trends. This method tends to be used on short tail lines such as automobile physical damage.

●

Incurred Loss Indications: This method projects ultimate loss estimates based upon extrapolations of historic incurred loss trends. This method tends to be used on long tail lines of business such as automobile liability and homeowner’s liability.

●

Bornhuetter-Ferguson Indications: This method projects ultimate loss estimates based upon extrapolations of an expected amount of IBNR, which is added to current incurred losses or paid losses. This method tends to be used on small, immature, or volatile lines of business, such as our BOP and umbrella lines of business.

●

Bodily Injury Code Indications: This method projects ultimate loss estimates for our private passenger and commercial automobile bodily injury coverage based upon extrapolations of the historic number of accidents and the historic number of bodily injury claims per accident. Projected ultimate bodily injury claims are then segregated into expected claims by type of injury (e.g. soft tissue injury vs. hard tissue injury) based on past experience. An ultimate severity, or average paid loss amounts, is estimated based upon extrapolating historic trends. Projected ultimate loss estimates using this method are the aggregate of estimated losses by injury type.

Such techniques assume that past experience, adjusted for the effects of current developments and anticipated trends, is an appropriate basis for predicting our ultimate losses, total reserves, and resulting IBNR reserves. It is possible that the final outcome may fall above or below these amounts as a result of a number of factors, including immature data, sparse data, or significant growth in a line of business. Using these methodologies our actuaries established a range of reasonably possible estimations for net reserves of approximately $443,575 to $502,699 as of March 31, 2024. In general, the low and high values of the ranges represent reasonable minimum and maximum values of the indications based on the techniques described above. Our selected point estimate of net loss and LAE reserves based upon the analysis of our actuaries was $482,292 as of March 31, 2024.

The following table presents the point estimation of the recorded reserves and the range of estimations by line of business for net loss and LAE reserves as of March 31, 2024.


		As of March 31, 2024
Line of Business	Low		Recorded		High
Private passenger automobile	$	187,291	$	206,306	$	213,573
Commercial automobile		100,992		106,611		115,094
Homeowners		93,589		99,564		101,319
All other		61,703		69,811		72,713
Total	$	443,575	$	482,292	$	502,699

Table of Contents

The following table presents our total net reserves and the corresponding case reserves and IBNR reserves for each line of business as of March 31, 2024.


		As of March 31, 2024
Line of Business	Case		IBNR		Total
Private passenger automobile	$	273,194	$	(66,897)	$	206,297
CAR assumed private passenger auto		1		8		9
Commercial automobile		71,826		2,708		74,534
CAR assumed commercial automobile		18,819		13,258		32,077
Homeowners		95,756		(7,649)		88,107
FAIR Plan assumed homeowners		4,436		7,021		11,457
All other		42,224		27,587		69,811
Total net reserves for losses and LAE	$	506,256	$	(23,964)	$	482,292

At March 31, 2024, our total IBNR reserves for our private passenger automobile line of business was comprised of ($101,892) related to estimated ultimate decreases in the case reserves, including anticipated recoveries (i.e. salvage and subrogation), and $34,995 related to our estimation for not yet reported losses.

Our IBNR reserves consist of our estimate of the total loss reserves required less our case reserves. The IBNR reserves for CAR assumed commercial automobile business are 41.3% of our total reserves for CAR assumed commercial automobile business as of March 31, 2024, due to the reporting delays in the information we receive from CAR, as described further in the section on Residual Market Loss and Loss Adjustment Expense Reserves. Our IBNR reserves for FAIR Plan assumed homeowners are 61.3% of our total reserves for FAIR Plan assumed homeowners at March 31, 2024, due to similar reporting delays in the information we receive from FAIR Plan.

The following table presents information by line of business for our total net reserves and the corresponding retained (i.e. direct less ceded) reserves and assumed reserves as of March 31, 2024.


		As of March 31, 2024
Line of Business		Retained		Assumed		Net
Private passenger automobile	$	206,297
CAR assumed private passenger automobile			$	9
Net private passenger automobile					$	206,306
Commercial automobile		74,534
CAR assumed commercial automobile				32,077
Net commercial automobile						106,611
Homeowners		88,107
FAIR Plan assumed homeowners				11,457
Net homeowners						99,564
All other		69,811		—		69,811
Total net reserves for losses and LAE	$	438,749	$	43,543	$	482,292

Residual Market Loss and Loss Adjustment Expense Reserves

We are a participant in CAR, the FAIR Plan and other various residual markets and assume a portion of losses and LAE on business ceded by the industry participants to the residual markets. We estimate reserves for assumed losses and LAE that have not yet been reported to us by the residual markets. Our estimations are based upon the same factors we use for our own reserves, plus additional factors due to the nature of and the information we receive.

Residual market deficits, consists of premium ceded to the various residual markets less losses and LAE, and is allocated among insurance companies based on a various formulas (the “Participation Ratio”) that takes into consideration a company’s voluntary market share.

Because of the lag in the various residual market estimations, and in order to try to validate to the extent possible the information provided, we must try to estimate the effects of the actions of our competitors in order to establish our Participation Ratio.

Table of Contents

Although we rely to a significant extent in setting our reserves on the information the various residual markets provide, we are cautious in our use of that information, because of the delays in receiving data from the various residual markets. As a result, we have to estimate our Participation Ratio and these reserves are subject to significant judgments and estimates.

Sensitivity Analysis

Establishment of appropriate reserves is an inherently uncertain process. There can be no certainty that currently established reserves based on our key assumptions regarding frequency and severity in our lines of business, or our assumptions regarding our share of the CAR loss will prove adequate in light of subsequent actual experience. To the extent that reserves are inadequate and are strengthened, the amount of such increase is treated as a charge to earnings in the period that the deficiency is recognized. To the extent that reserves are redundant and are released, the amount of the release is a credit to earnings in the period the redundancy is recognized. For the three months ended March 31, 2024, a 1 percentage-point change in the loss and LAE ratio would result in a change in reserves of $2,362. Each 1 percentage-point change in the loss and loss expense ratio would have had a $1,866 effect on net income, or $0.13 per diluted share.

Our assumptions consider that past experience, adjusted for the effects of current developments and anticipated trends, are an appropriate basis for establishing our reserves. Our individual key assumptions could each have a reasonable possible range of plus or minus 5 percentage-points for each estimation, although there is no guarantee that our assumptions will not have more than a 5 percentage point variation. The following sensitivity tables present information for each of our primary lines of business on the effect each 1 percentage-point change in each of our key assumptions on unpaid frequency and severity could have on our retained (i.e., direct minus ceded) loss and LAE reserves and net income for the three months ended March 31, 2024. In evaluating the information in the table, it should be noted that a 1 percentage-point change in a single assumption would change estimated reserves by 1 percentage-point.

Table of Contents

A 1 percentage-point change in both our key assumptions would change estimated reserves within a range of plus or minus 2 percentage-points.


	-1 Percent		No		+1 Percent
	Change in		Change in		Change in
	Frequency		Frequency		Frequency
Private passenger automobile retained loss and LAE reserves
-1 Percent Change in Severity
Estimated decrease in reserves	$	(4,126)	$	(2,063)	$	—
Estimated increase in net income		3,260		1,630		—
No Change in Severity
Estimated (decrease) increase in reserves		(2,063)		—		2,063
Estimated increase (decrease) in net income		1,630		—		(1,630)
+1 Percent Change in Severity
Estimated increase in reserves		—		2,063		4,126
Estimated decrease in net income		—		(1,630)		(3,260)

Commercial automobile retained loss and LAE reserves
-1 Percent Change in Severity
Estimated decrease in reserves		(1,491)		(745)		—
Estimated increase in net income		1,178		589		—
No Change in Severity
Estimated (decrease) increase in reserves		(745)		—		745
Estimated increase (decrease) in net income		589		—		(589)
+1 Percent Change in Severity
Estimated increase in reserves		—		745		1,491
Estimated decrease in net income		—		(589)		(1,178)

Homeowners retained loss and LAE reserves
-1 Percent Change in Severity
Estimated decrease in reserves		(1,762)		(881)		—
Estimated increase in net income		1,392		696		—
No Change in Severity
Estimated (decrease) increase in reserves		(881)		—		881
Estimated increase (decrease) in net income		696		—		(696)
+1 Percent Change in Severity
Estimated increase in reserves		—		881		1,762
Estimated decrease in net income		—		(696)		(1,392)

All other retained loss and LAE reserves
-1 Percent Change in Severity
Estimated decrease in reserves		(1,396)		(698)		—
Estimated increase in net income		1,103		551		—
No Change in Severity
Estimated (decrease) increase in reserves		(698)		—		698
Estimated increase (decrease) in net income		551		—		(551)
+1 Percent Change in Severity
Estimated increase in reserves		—		698		1,396
Estimated decrease in net income		—		(551)		(1,103)

Our estimated share of CAR loss and LAE reserves is based on assumptions about our Participation Ratio, the size of CAR, and the resulting deficit (similar assumptions apply with respect to the FAIR Plan). Our assumptions consider that past experience, adjusted for the effects of current developments and anticipated trends, is an appropriate basis for establishing our CAR reserves. Each of our assumptions could have a reasonably possible range of plus or minus 5 percentage-points for each estimation.

Table of Contents

The following sensitivity table presents information of the effect each 1 percentage-point change in our assumptions on our share of reserves for CAR and other residual markets could have on our assumed loss and LAE reserves and net income for the three months ended March 31, 2024. In evaluating the information in the table, it should be noted that a 1 percentage-point change in our assumptions would change estimated reserves by 1 percentage-point.


	-1 Percent		+1 Percent
	Change in		Change in
	Estimation		Estimation
CAR assumed commercial automobile
Estimated (decrease) increase in reserves	$	(321)	$	321
Estimated increase (decrease) in net income		254		(254)
FAIR Plan assumed homeowners
Estimated (decrease) increase in reserves		(115)		115
Estimated increase (decrease) in net income		91		(91)

Reserve Development Summary

The changes we have recorded in our reserves in the past illustrate the uncertainty of estimating reserves. Our prior year reserves decreased by $10,958 and $11,533 during the three months ended March 31, 2024 and 2023, respectively.

The following table presents a comparison of prior year development of our net reserves for losses and LAE for the three months ended March 31, 2024 and 2023. Each accident year represents all claims for an annual accounting period in which loss events occurred, regardless of when the losses are actually reported, booked or paid. Our financial statements reflect the aggregate results of the current and all prior accident years.


	Three Months Ended March 31,
Accident Year	2024		2023
2014 & prior	$	(207)	$	(344)
2015		(531)		(662)
2016		(313)		(302)
2017		(169)		(1,117)
2018		(1,402)		(766)
2019		(529)		(2,143)
2020		(944)		(3,575)
2021		(1,007)		(1,198)
2022		(2,440)		(1,426)
2023		(3,416)		—
All prior years	$	(10,958)	$	(11,533)

The decreases in prior years’ reserves during the three months ended March 31, 2024 and 2023 resulted from re-estimations of prior year ultimate loss and LAE liabilities. The 2024 decrease is composed of reductions of $1,908 in our private passenger automobile reserves, $1,352 in our commercial automobile reserves, $1,627 in our homeowners reserves and $6,071 in all other lines reserves. The 2023 decrease is primarily composed of reductions of $3,207 in our retained private passenger automobile reserves, $2,286 in our retained commercial automobile reserves, $2,570 in our retained homeowners reserves and $3,470 in our retained other lines reserves.

Table of Contents

The following table presents information by line of business for prior year development of our net reserves for losses March 31, 2024.

Private Passenger

Commercial

Accident Year

Automobile

Homeowners

All Other

Total

2014 & prior

(14)

—

(193)

(207)

2015

(2)

(332)

—

(197)

(531)

2016

(50)

—

(346)

(313)

2017

(13)

(44)

(115)

(169)

2018

203

(199)

(155)

(1,251)

(1,402)

2019

(99)

(323)

(41)

(66)

(529)

2020

(30)

(215)

(428)

(271)

(944)

2021

(109)

(11)

(931)

(1,007)

2022

(79)

(157)

(611)

(1,593)

(2,440)

2023

(2,001)

(384)

(1,108)

(3,416)

All prior years

(1,908)

(1,352)

(1,627)

(6,071)

(10,958)

The improved private passenger and commercial automobile results were primarily due to fewer IBNR claims than previously estimated and better than previously estimated severity on our established bodily injury and property damage case reserves. Our other than auto and homeowners lines of business prior year reserves decreased, due primarily to fewer IBNR claims than previously estimated.

For further information, see “Results of Operations: Losses and Loss Adjustment Expenses.”

Forward-Looking Statements

Forward-looking statements might include one or more of the following, among others:

●

Projections of revenues, income, earnings per share, capital expenditures, dividends, capital structure or other financial items;

●

Descriptions of plans or objectives of management for future operations, products or services;

●

Forecasts of future economic performance, liquidity, need for funding and income;

●

Legal and regulatory commentary

●

Descriptions of assumptions underlying or relating to any of the foregoing; and

●

Future performance of credit markets.

Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “aim,” “projects,” or words of similar meaning and expressions that indicate future events and trends, or future or conditional verbs such as “will,” “would,” “should,” “could,” or “may.” All statements that address expectations or projections about the future, including statements about the Company’s strategy for growth, product development, market position, expenditures and financial results, are forward-looking statements.

Forward-looking statements are not guarantees of future performance. By their nature, forward-looking statements are subject to risks and uncertainties. There are a number of factors, many of which are beyond our control, that could cause actual future conditions, events, results or trends to differ significantly and/or materially from historical results or those projected in the forward-looking statements. These factors include but are not limited to:

●

The competitive nature of our industry and the possible adverse effects of such competition;

●

Conditions for business operations and restrictive regulations in Massachusetts;

●

The possibility of losses due to claims resulting from severe weather;

●

The impact of inflation and supply chain delays on loss severity;

●

The possibility that the Commissioner may approve future rule changes that change the operation of the residual market;

Table of Contents

●

The possibility that existing insurance-related laws and regulations will become further restrictive in the future;

●

Our possible need for and availability of additional financing, and our dependence on strategic relationships, among others;

●

Other risks and factors identified from time to time in our reports filed with the SEC. Refer to Part I, Item 1A — Risk Factors of our 2023 Annual Report on Form 10-K for the year ended December 31, 2023.

Some other factors, such as market, operational, liquidity, interest rate, equity and other risks, are described elsewhere in this Quarterly Report on Form 10-Q. Factors relating to the regulation and supervision of our Company are also described or incorporated in this report. There are other factors besides those described or incorporated in this report that could cause actual conditions, events or results to differ from those in the forward-looking statements.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We do not undertake any obligation to update publicly or revise any forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.

Table of Contents

Item 3. Quantitative and Qualitative Information about Market Risk (Dollars in thousands)

Market Risk. Market risk is the risk that we will incur losses due to adverse changes in market rates and prices. We have exposure to market risk through our investment activities and our financing activities. Our primary market risk exposure is to changes in interest rates. We use both fixed and variable rate debt as sources of financing. We have not entered, and do not plan to enter, into any derivative financial instruments for trading or speculative purposes.

Interest Rate Risk. Interest rate risk is the risk that we will incur economic losses due to adverse changes in interest rates. Our exposure to interest rate changes primarily results from our significant holdings of fixed rate investments and from our financing activities. Our fixed maturity investments include U.S. and foreign government bonds, securities issued by government agencies, obligations of state and local governments and governmental authorities, corporate bonds and asset-backed securities, most of which are exposed to changes in prevailing interest rates.

We manage our exposure to risks associated with interest rate fluctuations through active review of our investment portfolio by our management and Board and consultation with third-party financial advisors. As a general matter, we do not attempt to match the durations of our assets with the durations of our liabilities, and the majority of our liabilities are “short tail.” Our goal is to maximize the total after-tax return on all of our investments. An important strategy that we employ to achieve this goal is to try to hold enough in cash and short-term investments in order to avoid liquidating longer-term investments to pay claims.

Based upon the results of interest rate sensitivity analysis, the following table shows the interest rate risk of our investments in fixed maturities, measured in terms of fair value (which is equal to the carrying value for all our fixed maturity securities).


		-100 Basis				+100 Basis
		Point Change		No Change		Point Change
As of March 31, 2024
Estimated fair value	$	1,077,360	$	1,043,556	$	1,004,670
Estimated increase (decrease) in fair value	$	33,804	$	—	$	(38,886)

With respect to floating rate debt, we are exposed to the effects of changes in prevailing interest rates. At March 31, 2024, we had no debt outstanding under our credit facility. Assuming the full utilization of our current available credit facility, a 2.0% increase in the prevailing interest rate on our variable rate debt would result in interest expense increasing approximately $600 for 2024, assuming that all of such debt is outstanding for the entire year.

In addition, in the current market environment, our investments can also contain liquidity risks.

Equity Risk. Equity risk is the risk that we will incur economic losses due to adverse changes in equity prices. Our exposure to changes in equity prices results from our holdings of common stock and mutual funds held to fund the executive deferred compensation plan. We continuously evaluate market conditions and we expect in the future to purchase additional equity securities. We principally manage equity price risk through industry and issuer diversification and asset allocation techniques.

Item 4. Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), we evaluated the effectiveness of the design and operation of our disclosure controls and procedures [as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)] as of the end of the period covered by this report. Based on that evaluation, our CEO

Table of Contents

and CFO have concluded that our disclosure controls and procedures are adequate and effective and ensure that all information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and that information required to be disclosed in such reports is accumulated and communicated to management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

Please see “Item 1 — Financial Statements - Note 8, Commitments and Contingencies.”

Item 1A. Risk Factors

There have been no subsequent material changes from the risk factors previously disclosed in the Company’s 2023 Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds (Dollars in thousands)

On February 23, 2022, the Board of Directors approved an additional share repurchase of up to $50,000 of the Company’s outstanding common shares. The Board of Directors has cumulatively authorized increases to the existing share repurchase program of up to $200,000 of its outstanding common shares. Under the program, the Company may repurchase shares of its common stock for cash in public or private transactions, in the open market or otherwise. The timing of such repurchases and actual number of shares repurchased will depend on a variety of factors including price, market conditions and applicable regulatory and corporate requirements. The program does not require the Company to repurchase any specific number of shares and it may be modified, suspended or terminated at any time without prior notice. No share repurchases were made by the Company during the three months ended March 31, 2024.


	Total number	Average		Total number of shares purchased as part of	Maximum number of
	of Shares	price paid		publicly announced	shares that may yet be purchased under the
Period	purchase	per share		plans or programs	plans or programs
January 1-31, 2024	—		—	—		703,971
February 1-29, 2024	—		—	—		703,971
March 1-31, 2024	—		—	—		703,971
Total	—		—	—

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

During the three months ended March 31, 2024, none of the officers (as defined in rule 16a-1(f) of the Securities Exchange Act of 1934) or directors of the Company adopted, terminated or modified any contract, instruction or written plan for the purchase and sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement,” as such term is defined in Item 408(a) of Regulation S-K.

On May 8, 2024, the Compensation Committee of the Board of Directors of the Company (the “Committee”) amended and restated the Company’s Annual Performance Incentive Plan (the “A&R Incentive Plan”). Our executive officers are eligible to participate in the A&R Incentive Plan. The amended terms in the A&R Incentive Plan include (i) removal of the maximum limit on the amount payable to a participant in a plan year, which had not been adjusted since 2007, (ii) removal of provisions relating to Section 162(m) of the Internal Revenue Code of 1986, as amended, which are no longer applicable, (iii) permit the Committee to select other performance objectives applicable to awards in its discretion

Table of Contents

and (iv) other non-substantive changes. The terms of the A&R Incentive Plan are effective for 2024 performance awards and future awards.

The foregoing description of the A&R Incentive Plan is qualified in its entirety by reference to the Amended & Restated Annual Performance Incentive Plan, a copy of which is filed as Exhibit [10.31] hereto and is incorporated by reference.

Item 6. Exhibits

The exhibits are contained herein as listed in the Exhibit Index.

Table of Contents

SAFETY INSURANCE GROUP, INC.

EXHIBIT INDEX


Exhibit
Number		Description
10.30 10.31 31.1 31.2 32.1		Employment Agreement between Safety Insurance Group, Inc. and Brian S. Lam as of March 1, 2024(3) Amended and Restated Annual Performance Incentive Plan Safety Insurance, Group, Inc.(3) CEO Certification Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes Oxley Act of 2002 CFO Certification Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes Oxley Act of 2002 CEO Certification Pursuant to U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes Oxley Act of 2002
32.2		CFO Certification Pursuant to U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes Oxley Act of 2002(2)

101.INS		Inline XBRL Instance Document(2)

101.SCH		Inline XBRL Taxonomy Extension Schema(2)

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase(2)

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase(2)

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase(2)

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase(2)
104		The cover page from this Current Report on form 10-Q, formatted in Inline XBRL(2)

(1) Not included herein as the information is included as part of this Form 10-Q, Item 1 - Financial Statements, Note 3, Earnings per Weighted Average Common Share.

(2)	Included herein.

(3)	Denotes management contract or compensation plan or arrangement.

Table of Contents

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


May 9, 2024	SAFETY INSURANCE GROUP, INC. (Registrant)



	By:	/s/ CHRISTOPHER T. WHITFORD
		Christopher T. Whitford
		Vice President, Chief Financial Officer, Secretary and Principal Accounting Officer

Get the next $SAFT alert in real time by email

SEC Form 10-Q filed by Safety Insurance Group Inc.

Chat with this insight

Recent Analyst Ratings for
$SAFT

$SAFT
Insider Purchases

Insider purchases reveal critical bullish sentiment about the company from key stakeholders. See them live in this feed.

Director Brophy Charles Joseph Iii bought $78,800 worth of shares (1,000 units at $78.80), increasing direct ownership by 11% to 10,000 units (SEC Form 4)

$SAFT
Press Releases

Fastest customizable press release news feed in the world

Safety Insurance Group, Inc. Announces Third Quarter 2024 Results and Declares Fourth Quarter 2024 Dividend

Safety Insurance Group, Inc. Announces Second Quarter 2024 Results and Declares Third Quarter 2024 Dividend

AM Best Revises Issuer Credit Rating Outlook to Negative for Safety Insurance Group, Inc. and Its Key Subsidiaries

$SAFT
SEC Filings