10-Q - SAFT - Equibles

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, 2020

☐	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 ⌧

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

As of May 6, 2020 there were 15,309,497 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 (Loss) Income	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	25
Item 3.	Quantitative and Qualitative Information about Market Risk	45
Item 4.	Controls and Procedures	45
Part II. Other Information
Item 1	Legal Proceedings	47
Item 1A.	Risk Factors	47
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 3.	Defaults upon Senior Securities	47
Item 4.	Mine Safety Disclosures	48
Item 5.	Other Information	48
Item 6.	Exhibits	48
EXHIBIT INDEX		49
SIGNATURE		50

Table of Contents Safety Insurance Group, Inc. and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands, except share data)


	****	March 31,		****	December 31,
		2020			2019
		(Unaudited)
Assets
Investments:
Fixed maturities, available for sale, at fair value (amortized cost: $1,159,859 and $1,192,357, allowance for expected credit losses of $2,510 at March 31, 2020)		$	1,165,455		$	1,228,040
Equity securities, at fair value (cost: $153,359 and $151,121)		****	149,888			177,637
Other invested assets		****	41,881			37,278
Total investments		****	1,357,224			1,442,955
Cash and cash equivalents		****	41,567			44,407
Accounts receivable, net of allowance for expected credit losses of $334 at March 31, 2020		****	189,671			193,369
Receivable for securities sold		****	1,067			1,784
Accrued investment income		****	9,152			8,404
Taxes recoverable		****	—			1,003
Receivable from reinsurers related to paid loss and loss adjustment expenses		****	14,039			11,319
Receivable from reinsurers related to unpaid loss and loss adjustment expenses		****	121,337			122,372
Ceded unearned premiums		****	30,191			35,182
Deferred policy acquisition costs		****	72,132			74,287
Deferred income taxes		****	6,001			—
Equity and deposits in pools		****	30,004			29,791
Operating lease right-of-use-assets			34,256			33,998
Other assets		****	24,078			23,798
Total assets		$	1,930,719		$	2,022,669

Liabilities
Loss and loss adjustment expense reserves		$	608,693		$	610,566
Unearned premium reserves		****	428,291			442,219
Accounts payable and accrued liabilities		****	55,911			75,016
Payable for securities purchased		****	4,343			6,377
Payable to reinsurers		****	2,446			12,911
Deferred income taxes			—			5,717
Taxes payable			543			—
Debt			30,000			—
Operating lease liabilities			34,256			33,998
Other liabilities		****	4,127			27,459
Total liabilities		****	1,168,610			1,214,263

Commitments and contingencies (Note 8)

Shareholders’ equity
Common stock: $0.01 par value; 30,000,000 shares authorized; 17,732,359 and 17,662,779 shares issued			177			177
Additional paid-in capital		****	204,064			202,321
Accumulated other comprehensive income, net of taxes		****	6,404			28,190
Retained earnings		****	645,691			661,553
Treasury stock, at cost: 2,422,862 and 2,279,570 shares		****	(94,227)			(83,835)
Total shareholders’ equity		****	762,109			808,406
Total liabilities and shareholders’ equity		$	1,930,719		$	2,022,669

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,					****
	****	2020		****	2019		****

Net earned premiums		$	197,895		$	194,491
Net investment income		****	10,710			11,751
Earnings from partnership investments		****	1,339			835
Net realized losses on investments		****	(631)			(164)
Change in net unrealized gains on equity investments			(29,988)			11,801
Net impairment losses on investments (a)			—			(220)
Credit loss expense			(2,510)			—
Finance and other service income		****	4,229			4,085
Total revenue		****	181,044			222,579

Losses and loss adjustment expenses		****	120,746			126,027
Underwriting, operating and related expenses		****	63,082			60,434
Interest expense		****	47			22
Total expenses		****	183,875			186,483

(Loss) income before income taxes		****	(2,831)			36,096
Income tax (benefit) expense		****	(841)			6,150
Net (loss) income		$	(1,990)		$	29,946

(Loss) earnings per weighted average common share:
Basic		$	(0.13)		$	1.97
Diluted		$	(0.13)		$	1.95

Cash dividends paid per common share		$	0.90		$	0.80

Number of shares used in computing earnings per share:
Basic		****	15,230,784			15,140,804
Diluted		****	15,347,083			15,305,785

(a) No portion of the other-than-temporary impairments recognized in the period indicated were included in Other Comprehensive Income for the period ended March 31, 2019.

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

Table of Contents Safety Insurance Group, Inc. and Subsidiaries

Consolidated Statements of Comprehensive (Loss) Income

(Unaudited)

(Dollars in thousands)


		Three Months Ended March 31,
	****	2020		****	2019
Net (loss) income		$	(1,990)		$	29,946

Other comprehensive (loss) income, net of tax:
Unrealized holding (losses) gains during the period, net of income tax (benefit) expense of ($5,924) and $5,296.		****	(22,284)			19,923
Reclassification adjustment for net realized losses on investments included in net (loss) income, net of income tax benefit of $132 and $35.		****	498			130
Other comprehensive (loss) income, net of tax:		****	(21,786)			20,053

Comprehensive (loss) income		$	(23,776)		$	49,999

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			(Loss) Income,			Retained			Treasury			Shareholders’
		Stock			Capital			Net of Taxes			Earnings			Stock			Equity
Balance at December 31, 2018		$	176		$	196,292		$	(10,706)		$	616,717		$	(83,835)		$	718,644
Cumulative effect of adoption of updated accounting guidance for callable debt securities at January 1, 2019, net of taxes												(2,373)						(2,373)
Net income, January 1 to March 31, 2019												29,946						29,946
Unrealized gains on securities available for sale, net of deferred federal income taxes									20,053									20,053
Restricted share awards issued			1			462												463
Recognition of employee share-based compensation, net of deferred federal income taxes						1,260												1,260
Dividends paid and accrued												(12,300)						(12,300)
Acquisition of treasury stock															—			—
Balance at March 31, 2019		$	177		$	198,014		$	9,347		$	631,990		$	(83,835)		$	755,693


	****	****		****	****		****	Accumulated		****	****		****	****		****	****
								Other
					Additional			Comprehensive									Total
		Common			Paid-in			Income,			Retained			Treasury			Shareholders’
		Stock			Capital			Net of Taxes			Earnings			Stock			Equity
Balance at December 31, 2019		$	177		$	202,321		$	28,190		$	661,553		$	(83,835)		$	808,406
Net loss, January 1 to March 31, 2020											****	(1,990)					****	(1,990)
Unrealized losses on securities available for sale, net of deferred federal income taxes								****	(21,786)								****	(21,786)
Restricted share awards issued		****			****	528											****	528
Recognition of employee share-based compensation, net of deferred federal income taxes					****	1,215											****	1,215
Dividends paid and accrued											****	(13,872)					****	(13,872)
Acquisition of treasury stock											****				(10,392)		****	(10,392)
Balance at March 31, 2020		$	177		$	204,064		$	6,404		$	645,691		$	(94,227)		$	762,109

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,
	****	2020		****	2019
Cash flows from operating activities:
Net (loss) income		$	(1,990)		$	29,946
Adjustments to reconcile net (loss) income to net cash used for operating activities:
Investment amortization, net		****	1,774			777
Fixed Asset depreciation, net		****	1,606			1,207
Stock based compensation			1,744			1,723
(Credit) Provision for deferred income taxes		****	(5,927)			469
Net realized losses on investments		****	631			164
Net impairment losses on investments			—			220
Credit loss expense			2,510			—
Earnings from partnership investments		****	(1,339)			(835)
Change in net unrealized gains on equity investments			29,988			(11,801)
Changes in assets and liabilities:
Accounts receivable		****	3,698			1,408
Accrued investment income		****	(748)			(1,030)
Receivable from reinsurers		****	(1,685)			(16,992)
Ceded unearned premiums		****	4,991			437
Deferred policy acquisition costs		****	2,155			1,450
Taxes recoverable			1,003			—
Other assets		****	877			(3,849)
Loss and loss adjustment expense reserves		****	(1,873)			(2,957)
Unearned premium reserves		****	(13,928)			(4,991)
Taxes payable			543			2,196
Accounts payable and accrued liabilities		****	(18,748)			(17,357)
Payable to reinsurers		****	(10,465)			6,719
Other liabilities		****	(23,332)			5,084
Net cash used for operating activities		****	(28,515)			(8,012)

Cash flows from investing activities:
Fixed maturities purchased		****	(32,329)			(31,389)
Equity securities purchased		****	(12,095)			(5,169)
Other invested assets purchased		****	(3,389)			(1,750)
Proceeds from sales and paydowns of fixed maturities		****	33,433			33,587
Proceeds from maturities, redemptions, and calls of fixed maturities		****	28,909			7,260
Proceed from sales of equity securities		****	8,638			4,874
Proceeds from other invested assets redeemed			106			—
Fixed assets purchased		****	(2,977)			(1,127)
Net cash provided by investing activities		****	20,296			6,286

Cash flows from financing activities:
Debt		****	30,000			—
Dividends paid to shareholders		****	(14,229)			(12,964)
Acquisition of treasury stock			(10,392)			—
Net cash provided by (used for) financing activities		****	5,379			(12,964)

Net decrease in cash and cash equivalents		****	(2,840)			(14,690)
Cash and cash equivalents at beginning of year		****	44,407			37,582
Cash and cash equivalents at end of period		$	41,567		$	22,892

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

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Safety Insurance Group, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands except per share and 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 Asset Management Corporation (“SAMC”), and Safety Management Corporation, which is SAMC’s holding company. All intercompany transactions have been eliminated.

The financial information for the three months ended March 31, 2020 and 2019 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, 2019 is derived from the audited financial statements included in the Company's 2019 Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on February 28, 2020.

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 financial statements included in the Company’s 2019 Annual Report on Form 10-K filed with the SEC on February 28, 2020.

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 operates through its insurance company subsidiaries, Safety Insurance Company, Safety Indemnity Insurance Company, and Safety Property and Casualty Insurance Company (together referred to as the “Insurance Subsidiaries”).

The Insurance Subsidiaries began writing private passenger automobile and homeowners insurance in New Hampshire during 2008, personal umbrella insurance in New Hampshire during 2009, and commercial automobile insurance in New Hampshire during 2011. The Insurance Subsidiaries began writing all of these lines of business in Maine during 2016.

Management has assessed and concluded that there were no conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements were issued.

2. Recent Accounting Pronouncements

On March 20, 2019, the SEC adopted amendments to Regulation S-K and related rules and forms to modernize and simplify certain disclosure requirements for public companies. The amendments are intended to reduce the costs and burdens of the disclosure process while continuing to require disclosure of all material information. The amended rules generally were effective on May 2, 2019 and reduce disclosures but some provisions added new requirements. The adoption of the new rules did not have a material impact on the Company’s financial position, results of operations, cash flows, or disclosures.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which changes the fair value 8

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Safety Insurance Group, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands except per share and share data)

measurement disclosure requirements under ASC 820. The Company’s adoption of ASU 2018-13 on January 1, 2020 did not have an impact on the fair value disclosures included in Note 5 – Investments.

In March 2017, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities, which requires certain premiums on callable debt securities to be amortized to the earliest call date. The amortization period for callable debt securities purchased at a discount will not be impacted. The Company adopted ASU 2017-08 effective January 1, 2019 which resulted in the recognition of $2,373 of additional amortization, net of tax, as a cumulative effect adjustment which decreased retained earnings by that amount.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Statements, which amends the guidance for the impairment of financial instruments and is expected to result in more timely recognition of impairment losses. The update introduces an impairment model referred to as the current expected credit loss (“CECL”) model. The impairment model is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses. The ASU is also intended to reduce the complexity of the current guidance by decreasing the number of credit impairment models that entities use to account for debt instruments. For public business entities that are SEC filers, the amendments in ASU No. 2016-13 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted the updated guidance on January 1, 2020 using the modified rertrospective approach. The updated guidance did not have a material impact on the opening balance of retained earnings. The Company has elected not to measure expected credit losses for accrued interest receivables related to its finance receivables and fixed maturity securities. At March 31, 2020, the Company recognized an allowance for expected credit losses related to its available-for-sale (“AFS”) debt securities of $2,510. As permitted, the Company has not restated comparative information for 2019 and, therefore, the comparative information for 2019 is reported under the prior model and is not comparable to the information presented for 2020.

In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard was effective for fiscal years beginning after December 15, 2018. In 2018, the FASB issued two additional updates, ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Leases (Topic 842): Targeted Improvements, both of which have the same effective date and transition requirements as ASU 2016-02. ASU 2018-10 makes sixteen technical corrections to alleviate unintended consequences from applying the new standard and does not make any substantive changes to the core provisions or principals of the new standard. ASU 2019-11 creates an additional transition method which allows companies to elect to not adjust their comparative period financial information and disclosures for the effects of the new lease standard and also creates a practical expedient for lessors to not separate lease and non-lease components. The Company adopted ASU 2016-02, ASU 2018-10 and ASU 2018-11 effective January 1, 2019 (“the application date”) using the required modified retrospective transition approach. In accordance with the guidance, the Company has elected not to adjust comparative periods. As such, Accounting Standards Codification (“ASC”) 842 will be applied to each lease that had commenced as of the application date with a cumulative effect adjustment as of that date. As of January 1, 2019, a right of use asset and lease liability of $35,984 were recorded in the Consolidated Balance Sheets. There was no impact on retained earnings or other components of equity in the Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019.

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Safety Insurance Group, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands except per share and share data)

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,				****
	2020		2019
(Loss) Earnings attributable to common shareholders - basic and diluted:
Net (loss) income from continuing operations	$	(1,990)	$	29,946
Allocation of loss (income) for participating shares		10		(167)
Net (loss) income from continuing operations attributed to common shareholders	$	(1,980)	$	29,779
(Loss) Earnings per share denominator - basic and diluted
Total weighted average common shares outstanding, including participating shares		15,304,758		15,225,774
Less: weighted average participating shares		(73,974)		(84,970)
Basic (loss) earnings per share denominator		15,230,784		15,140,804
Common equivalent shares- non-vested performance stock grants	****	116,299		164,981
Diluted (loss) earnings per share denominator	****	15,347,083		15,305,785

Basic (loss) earnings per share	$	(0.13)	$	1.97
Diluted (loss) earnings per share	$	(0.13)	$	1.95

Undistributed (loss) earnings attributable to common shareholders - basic and diluted:
Net (loss) income from continuing operations attributable to common shareholders -Basic	$	(0.13)	$	1.97
Dividends declared		(0.90)		(0.80)
Undistributed (loss) earnings	$	(1.03)	$	1.17

Net (loss) income from continuing operations attributable to common shareholders -Diluted	$	(0.13)	$	1.95
Dividends declared		(0.90)		(0.80)
Undistributed (loss) earnings	$	(1.03)	$	1.15

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. There were no anti-dilutive shares related to non vested performance stock grants for the three months ended March 31, 2020 and 2019.

4. Share-Based Compensation

2018 Long Term Incentive Plan

On April 2, 2018, the Company’s Board of Directors adopted the Safety Insurance Group, Inc. 2018 Long-Term Incentive Plan (“the 2018 Plan”), which was subsequently approved by our shareholders at the 2018 Annual Meeting of Shareholders. The 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 2018 Plan supersedes the Company’s 2002 Management Omnibus Incentive Plan (“the 2002 Incentive Plan”).

The 2018 Plan establishes an initial pool of 350,000 shares of common stock available for issuance to our employees and other eligible participants. The maximum number of shares of common stock between both the 2018 Plan 10

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Safety Insurance Group, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands except per share and share data)

and 2002 Incentive Plan with respect to which awards may be granted is 2,850,000. No further grants will be allowed under the 2002 Incentive Plan. At March 31, 2020, there were 234,170 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.

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Safety Insurance Group, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands except per share and share data)

The following table summarizes restricted stock activity under the Incentive Plan during the three months ended March 31, 2020 assuming a target payout for the 2020 performance-based shares.


	****	Shares	****	Weighted		Performance-based	****	Weighted
		Under		Average		Shares Under		Average
		Restriction		Fair Value		Restriction		Fair Value
Outstanding at beginning of year	****	78,202		$	79.09	84,105		$	79.34
Granted	****	34,799			90.10	36,649	(1)		84.68
Vested and unrestricted	****	(43,480)			78.07	(42,123)			73.55
Forfeited		—			—	(1,868)			84.61
Outstanding at end of period	****	69,521		$	85.24	76,763		$	84.94
(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 2002 Incentive Plan.
---	---

As of March 31, 2020, there was $9,428 of unrecognized compensation expense related to non-vested restricted stock awards that is expected to be recognized over a weighted average period of 1.8 years. The total fair value of the shares that were vested and unrestricted during the three months ended March 31, 2020 and 2019 was $6,493 and $7,771, respectively. For the three months ended March 31, 2020 and 2019, the Company recorded compensation expense related to restricted stock of $1,378 and $1,361, net of income tax benefits of $366 and $362, respectively.

5. Investments

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


		As of March 31, 2020

	****	Cost or		****	Allowance for		****	Gross Unrealized				****	Estimated
		Amortized			Expected Credit								Fair
		Cost			Losses			Gains		Losses (3)			Value
U.S. Treasury securities		$	1,823		$	—		$	60	$	—		$	1,883
Obligations of states and political subdivisions		****	224,800		****	—		****	8,924	****	(34)		****	233,690
Residential mortgage-backed securities (1)		****	288,122		****	—		****	12,998	****	(103)		****	301,017
Commercial mortgage-backed securities		****	105,678		****	—		****	3,553	****	(165)		****	109,066
Other asset-backed securities		****	26,659		****	—		****	63	****	(1,415)		****	25,307
Corporate and other securities		****	512,777		****	(2,510)		****	9,127	****	(24,902)		****	494,492
Subtotal, fixed maturity securities		****	1,159,859		****	(2,510)		****	34,725	****	(26,619)		****	1,165,455
Equity securities (2)		****	153,359		****	—		****	13,874	****	(17,345)		****	149,888
Other invested assets (4)		****	41,881		****	—		****	—	****	—		****	41,881
Totals		$	1,355,099		$	(2,510)		$	48,599	$	(43,964)		$	1,357,224

<br><br><br><br>

Table of Contents

Safety Insurance Group, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands except per share and share data)

		As of December 31, 2019										****
												****
	****	Cost or		****	Gross Unrealized				****	Estimated		****
		Amortized								Fair		****
		Cost			Gains		Losses			Value		****
U.S. Treasury securities		$	1,504		$	8	$	—		$	1,512
Obligations of states and political subdivisions			241,597			9,799		—			251,396
Residential mortgage-backed securities (1)			301,503			6,608		(909)			307,202
Commercial mortgage-backed securities			106,902			3,233		(397)			109,738
Other asset-backed securities			36,068			218		(64)			36,222
Corporate and other securities			504,783			18,455		(1,268)			521,970
Subtotal, fixed maturity securities			1,192,357			38,321		(2,638)			1,228,040
Equity securities (2)			151,121			27,879		(1,363)			177,637
Other invested assets (4)			37,278			—		—			37,278
Totals		$	1,380,756		$	66,200	$	(4,001)		$	1,442,955
(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 733 and 229 securities in an unrealized loss position at March 31, 2020 and December 31, 2019, 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, 2020
	****	Amortized		****	Estimated
		Cost			Fair Value
Due in one year or less		$	51,519		$	51,881
Due after one year through five years		****	295,621		****	287,963
Due after five years through ten years		****	311,755		****	305,990
Due after ten years through twenty years		****	79,555		****	83,326
Due after twenty years		****	950		****	906
Asset-backed securities		****	420,459		****	435,389
Totals		$	1,159,859		$	1,165,455

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


		Three Months Ended March 31,					****
	****	2020		****	2019		****
Gross realized gains
Fixed maturity securities		$	889		$	115
Equity securities		****	1,576			953
Gross realized losses
Fixed maturity securities		****	(301)			(667)
Equity securities		****	(2,795)			(565)
Net realized losses on investments		$	(631)		$	(164)

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 13

Table of Contents

Safety Insurance Group, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands except per share and share data)

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.

The following tables as of March 31, 2020 and December 31, 2019 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, 2020
		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		$	—		$	—		$	—		$	—		$	—		$	—
Obligations of states and political subdivisions		****	656		****	34		****	—		****	—		****	656		****	34
Residential mortgage-backed securities		****	20,492		****	99		****	195		****	4		****	20,687		****	103
Commercial mortgage-backed securities		****	22,272		****	165		****	—		****	—		****	22,272		****	165
Other asset-backed securities		****	14,840			534			8,202			881			23,042			1,415
Corporate and other securities		****	233,543		****	23,185		****	8,758		****	1,717		****	242,301		****	24,902
Subtotal, fixed maturity securities		****	291,803		****	24,017		****	17,155		****	2,602		****	308,958		****	26,619
Equity securities		****	67,644		****	13,991		****	9,909		****	3,354		****	77,553		****	17,345
Total temporarily impaired securities		$	359,447		$	38,008		$	27,064		$	5,956		$	386,511		$	43,964


		As of December 31, 2019
		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		$	—		$	—		$	—		$	—		$	—		$	—
Obligations of states and political subdivisions			—			—			—			—			—			—
Residential mortgage-backed securities			61,933			409			31,655			500			93,588			909
Commercial mortgage-backed securities			36,398			397			866			—			37,264			397
Other asset-backed securities			21,281			64			462			—			21,743			64
Corporate and other securities			26,386			481			13,718			787			40,104			1,268
Subtotal, fixed maturity securities			145,998			1,351			46,701			1,287			192,699			2,638
Equity securities			8,849			391			14,143			972			22,992			1,363
Total temporarily impaired securities		$	154,847		$	1,742		$	60,844		$	2,259		$	215,691		$	4,001

Impairments

Beginning January 1, 2020, ASC 326, Credit Losses: Measurement of Credit Losses on Financial Instruments changed the process by which AFS debt securities are evaluated for impairment, requiring as the standard requires a new impairment model based on expected credit losses rather than incurred credit losses. Under the new guidance, an entity recognizes its estimate of expected credit losses through an allowance account.

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 credit loss component of the impairment from the amount related to all other factors and reports the credit loss component as credit loss expense. The impairment related to all other factors (non-credit factors) is reported in other comprehensive income. The allowance is adjusted for any additional credit losses and subsequent recoveries. Upon recognizing a credit loss, the cost basis is not adjusted.

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. 14

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Safety Insurance Group, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands except per share and share data)

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.

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.

The Company’s analysis of its fixed maturity portfolio at March 31, 2020 concluded that $2,510 of unrealized losses were due to credit factors and were recorded as credit loss expense for the three months ended March 31, 2020. 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, 2020 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.

During the three months ended March 31, 2019, the company recognized $220 in other-than-temporary impairments under the previous accounting guidance in ASC 320, Investments – Debt and Equity Securities.

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.

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, 2020

	Corporate and other
	securities
Balance January 1, 2020	$	—
Credit losses on securities with no previously recorded credit losses	****	2,510
Net increases (decreases) in allowance on previously impaired securities	****	—
Reduction due to sales	****	—
Writeoffs charged against allowance	****	—
Recoveries of amounts previously written off	****	—
Balance March 31, 2020	$	2,510

Table of Contents

Safety Insurance Group, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands except per share and share data)

Net Investment Income

The components of net investment income were as follows:


		Three Months Ended March 31,					****
	****	2020		****	2019		****
Interest on fixed maturity securities		$	9,759		$	11,127
Dividends on equity securities		****	1,206			1,082
Equity in earnings of other invested assets		****	516			282
Interest on other assets		****	7		****	9
Total investment income		****	11,488			12,500
Investment expenses		****	778			749
Net investment income		$	10,710		$	11,751

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 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. 16

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Safety Insurance Group, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands except per share and share data)

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 Federal Home Loan Bank of 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.

●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.

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 17

Table of Contents

Safety Insurance Group, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands except per share and share data)

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, 2020. There were no significant changes to the valuation process during the three months ended March 31, 2020. As of March 31, 2020 and December 31, 2019, no quotes or prices obtained were adjusted by management. All broker quotes obtained were non-binding.

At March 31, 2020 and December 31, 2019, investments in fixed maturities classified as available-for-sale had a fair value which equaled carrying value $1,165,455 and $1,228,040, respectively. We have no short-term investments. The carrying values of cash and cash equivalents and investment income accrued approximated fair value.

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


		As of March 31, 2020
	****	Total		****	Level 1 Inputs		****	Level 2 Inputs		****	Level 3 Inputs
U.S. Treasury securities		$	1,883		$	—		$	1,883		$	—
Obligations of states and political subdivisions		****	233,690		****	—		****	233,690		****	—
Residential mortgage-backed securities		****	301,017		****	—		****	301,017		****	—
Commercial mortgage-backed securities		****	109,066		****	—		****	109,066		****	—
Other asset-backed securities		****	25,307		****	—		****	25,307		****	—
Corporate and other securities		****	494,492		****	—		****	494,492		****	—
Equity securities		****	117,082		****	115,396		****	—		****	1,686
Total investment securities		$	1,282,537		$	115,396		$	1,165,455		$	1,686


		As of December 31, 2019
	****	Total		****	Level 1 Inputs		****	Level 2 Inputs		****	Level 3 Inputs
U.S. Treasury securities		$	1,512		$	—		$	1,512		$	—
Obligations of states and political subdivisions			251,396			—			251,396			—
Residential mortgage-backed securities			307,202			—			307,202			—
Commercial mortgage-backed securities			109,738			—			109,738			—
Other asset-backed securities			36,222			—			36,222			—
Corporate and other securities			521,970			—			521,970			—
Equity securities			144,877			144,361			—			516
Total investment securities		$	1,372,917		$	144,361		$	1,228,040		$	516

There were no transfers between Level 1 and Level 2 during the three months ended March 31, 2020 and 2019.

Table of Contents

Safety Insurance Group, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands except per share and share data)

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


		Three Months Ended March 31,					****
	****	2020		****	2019		****
		Level 3			Level 3		****
		Fair Value			Fair Value		****
		Securities			Securities		****
Balance at beginning of period		$	516		$	680
Net gains and losses included in earnings		****	—			—
Net gains included in other comprehensive income		****	—			—
Purchases		****	1,170			—
Sales			—			(297)
Transfers into Level 3			—			—
Transfers out of Level 3		****	—			—
Balance at end of period		$	1,686		$	383
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, 2020 and 2019. The Company held one Level 3 security at March 31, 2020 and March 31, 2019.

As of March 31, 2020 and December 31, 2019, there were approximately $32,806 and $32,760, 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 audited financial statements. The Company is required to submit a request 45 days before a quarter end to dispose of the security.

6. Allowance for Expected Credit Losses

Beginning on January 1, 2020, credit losses are recognized through an allowance account. See Note 2 – Recent Accounting Pronouncements for additional information and Note 5 – Investments for information about the allowance for expected credit losses on AFS debt securities.

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

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, at March 31, 2020 and January 1, 2020, and changes in the allowance for expected credit losses for the three months ended March 31, 2020.

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Safety Insurance Group, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands except per share and share data)

		Accounts Receivable Net of Allowance for Expected Credit Losses		Allowance for Expected Credit Losses
Balance January 1, 2020	$	193,369	$	578
Current period change for expected credit losses	****		****	1,576
Writeoffs of uncollectable accounts receivable	****		****	(1,820)
Balance March 31, 2020	$	189,671	$	334

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 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 recoverbales 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 claims and claim 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 and the Taxi/Limo Program, which represents 97% of the total reinsurance recoverable on paid and unpaid losses at March 31, 2020. The remaining 3% 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, 2020, all 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, 2020.

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Safety Insurance Group, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands except per share and share data)

7. Loss and Loss Adjustment Expense Reserves

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


		Three Months Ended March 31,
	****	2020		****	2019
Reserves for losses and LAE at beginning of year		$	610,566		$	584,719
Less receivable from reinsurers related to unpaid losses and LAE		****	(122,372)			(108,398)
Net reserves for losses and LAE at beginning of year		****	488,194			476,321
Incurred losses and LAE, related to:
Current year		****	130,330			138,007
Prior years		****	(9,584)			(11,980)
Total incurred losses and LAE		****	120,746			126,027
Paid losses and LAE related to:
Current year		****	48,745			58,796
Prior years		****	72,839			70,990
Total paid losses and LAE		****	121,584			129,786
Net reserves for losses and LAE at end of period		****	487,356			472,562
Plus receivable from reinsurers related to unpaid losses and LAE		****	121,337			109,200
Reserves for losses and LAE at end of period		$	608,693		$	581,762

At the end of each period, the reserves were re-estimated for all prior accident years. The Company’s prior year reserves decreased by $9,584 and $11,980 for the three months ended March 31, 2020 and 2019, 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, 2020 and 2019 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, 2020 and 2019, 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.

8. Commitments and 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.

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. 21

Table of Contents

Safety Insurance Group, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands except per share and share data)

9. Debt

On the August 10, 2018, the Company extended its Revolving Credit Agreement (the “Credit Agreement”) with Citizens Bank, N.A. (formerly known as RBS Citizens, N.A. (“Citizens Bank”)) to a maturity date of August 10, 2023. 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 (i) the LIBOR rate plus 1.25% per annum or (ii) the higher of Citizens Bank prime rate or 0.5% above the federal funds rate plus 1.25% per annum. 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, 2020, 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 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, 2020 and December 31, 2019. The credit facility commitment fee included in interest expense was computed at a rate of 0.25% per annum on the $30,000 commitment at March 31, 2020 and 2019.

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, 2020, the Company has the ability to borrow $283,999 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. The loan is fully collateralized by specific U.S. Government residential mortgage backed securities. The Company had no amounts outstanding from the FHLB-Boston at December 31, 2019.

Interest expense on the FHLB-Boston borrowing was $18 for the three months ended March 31, 2020. There was no interest expense for the three months ended March 31, 2019.

10. Income Taxes

Federal income tax expense for the three months ended March 31, 2020 and 2019 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 effective rate in 2020 is higher than the statutory rate due to the tax benefit related to the impact of stock-based compensation which increased the tax benefit during three months ended March 31, 2020.

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 (“IRS”). Therefore, the Company has not recorded any liability for uncertain tax positions under ASC 740, Income Taxes.

Table of Contents

Safety Insurance Group, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands except per share and share data)

During the three months ended March 31, 2020, 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 2016 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.

11. Share Repurchase Program

On August 3, 2007, the Board of Directors approved a share repurchase program of up to $30,000 of the Company’s outstanding common shares. The Board of Directors had cumulatively authorized increases to the existing share repurchase program of up to $150,000 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.

During the three months ended March 31, 2020, the Company purchased 143,292 shares on the open market under the program at a cost of $10,392. No share purchases were made by the Company under the program during the three months ended March 31, 2019. As of March 31, 2020, the Company has purchased 2,422,862 shares at a cost of $94,227. As of December 31, 2019, the Company had purchased 2,279,570 shares at a cost of $83,835.

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 ten years, some of which include options to extend the leases for up to five years.

The Company adopted ASU 2016-02, ASU 2018-10 and ASU 2018-11 effective January 1, 2019 (“the application date”) using the required modified retrospective transition approach. In accordance with the guidance, the Company has elected not to adjust comparative periods. As such ASC 842 will be applied to each lease that had commenced as of the application date with a cumulative effect adjustment as of that date. All periods before the application date presented in the financial statements will not change and the guidance in ASC 840 will apply. The Company has elected to apply the package of practical expedients provided in ASC 842 to all leases. In addition, the Company has elected not to apply the hindsight practical expedient or the land easement practical expedient.

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,
	****		2020		2019
Operating lease cost		$	1,151	$	1,154

Table of Contents

Safety Insurance Group, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands except per share and share data)

Other information related to leases was as follows:


	Three Months Ended March 31,
		2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,282	$	1,256
Weighted average remaining lease term
Operating leases		8.23 Years		9.25 Years
Weighted average discount rate
Operating leases		2.39%		3.45%

Maturities of lease liabilities were as follows:


2020	$	3,730
2021	****	4,817
2022	****	4,283
2023	****	3,880
2024		3,875
2025 and after	****	15,405
Total lease payments		35,990
Less imputed interest		(1,734)
Total	$	34,256

13. Subsequent Events

On April 14, 2020, the Company announced the Safety Personal Auto Relief Credit, a 15% policyholder credit which will be applied to personal auto policies for the months of April and May. The Company’s decision to return a portion of premium payments to its customers is a recognition of the impact of government-mandated stay-at-home measures, which are reducing the number of vehicles on the roads and miles driven, and consequently, the number of claims filed. The Company estimates that this premium refund will be approximately $12,000, which will be recognized in the second quarter of 2020.

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 Asset Management Corporation (“SAMC”), and Safety Management Corporation, which is SAMC’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 54.8% of our direct written premiums in 2019), we offer a portfolio of other insurance products, including commercial automobile (17.3% of 2019 direct written premiums), homeowners (23.0% of 2019 direct written premiums) and dwelling fire, umbrella and business owner policies (totaling 4.9% of 2019 direct written premiums). Operating exclusively in Massachusetts, New Hampshire, and Maine through our insurance company subsidiaries, Safety Insurance, Safety Indemnity, and Safety P&C (together referred to as the “Insurance Subsidiaries”), we have established strong relationships with independent insurance agents, who numbered 892 in 1,120 locations throughout these three states during 2019. We have used these relationships and our extensive knowledge of the Massachusetts market to become the third largest private passenger automobile carrier and the largest commercial automobile insurance carrier in Massachusetts, capturing an approximate 8.8% and 15.3% share, respectively, of the Massachusetts private passenger and commercial automobile markets in 2019 according to statistics compiled by the CAR. We are also the third largest homeowners insurance carrier in Massachusetts with a 7.2% 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 May 5, 2020.

Our Insurance Subsidiaries began writing insurance in New Hampshire during 2008 and in Maine in 2016. The table below shows the amount of direct written premiums written in each state during the three months ended March 31, 2020 and 2019.


	Three Months Ended March 31,
Direct Written Premiums	2020		2019
Massachusetts	$	189,839	$	196,361
New Hampshire		7,149		6,837
Maine		358		189
Total	$	197,346	$	203,387

Table of Contents Recent Trends and Events

Beginning in March 2020, the global pandemic associated with the novel coronavirus COVID-19 (“COVID-19”) and related economic conditions caused significant economic effects including temporary closures of many businesses and reduced consumer activity due to shelter-in-place, stay-at-home and other governmental actions. This, in turn, caused significant market volatility and as a result the Company experienced investment losses driven by the impact of changes in fair value on the Company's equity investments. For the quarter ended March 31, 2020, a decrease of $29,988 for the change in unrealized gains on equity investments was recognized within (loss) income before income taxes, compared to an increase of $11,801 recognized in the comparable 2019 period. The impact of changes in fair value of the Company’s long-term fixed maturity investments, which are presented in accumulated other comprehensive income, was a decrease of $21,786 to $6,404 at March 31, 2020 compared to $28,190 at December 31, 2019.

COVID-19 did not have a material effect on our premium revenues for the first quarter of 2020. Early in the second quarter of 2020, the Company announced the Safety Personal Auto Relief Credit, a 15% policyholder credit, representing approximately $12,000 in total premium which will be applied to personal auto policies for the months of April and May. Although the pandemic has resulted in fewer cars on the road, there was not a material impact to loss and loss adjustment expenses incurred on our personal and commercial auto policies during the three months ended March 31, 2020. We continue to consider appropriate relief efforts as information and developments occur.

There are many uncertainties with respect to COVID-19. For further discussion regarding the potential impacts of COVID-19 and related economic conditions on the Company, see "Part II—Item 1A—Risk Factors." These risks include legal challenges or legislative actions that extend business interruption coverage outside of our policy terms for business owner policies, which require direct physical loss or damage to property. Our business owner policies serve eligible small and medium sized commercial accounts including but not limited to apartments and condominiums; mercantile establishments; limited cooking restaurants; offices; and special trade contractors. The majority of these business owner policies do not contain a specific exclusion for viruses. However, as viruses do not produce direct physical damage or loss to property, our position is that no coverage exists for this peril. While we will evaluate each claim based on the specific facts and circumstances involved, our business owner policies do not provide coverage for business interruption claims unless there is direct physical damage or loss to property.

On March 17, 2020, the Company borrowed $30,000 from the FHLB-Boston out of an abundance of caution due to market uncertainty caused by COVID-19, 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. The loan is fully collateralized by specific U.S. Government residential mortgage backed securities. The cash is still held at March 31, 2020 and is presented as an offset to the Other Liabilities financial statement line-item, which represents outstanding claim checks.

Non-generally accepted accounting principals (“non-GAAP”) operating income as defined below was $24,182 for the three months ended March 31, 2020 compared to $20,927 for the comparable 2019 period. The increase in Non-GAAP operating income was primarily the result of a decrease in loss and loss adjustment expenses compared to the prior period. Non-GAAP operating income for the quarter ended March 31, 2020 was $1.57 per diluted share, compared to $1.36 per diluted share, for the comparable 2019 period.

For the quarter ended March 31, 2020, loss and loss adjustment expenses incurred decreased by $5,281, or 4.2%, to $120,746 from $126,027 for the comparable 2019 period. The decrease was primarily the result due to favorable winter weather related activity in 2020.

Table of Contents The following rate changes have been filed and approved by the insurance regulators of Massachusetts and New Hampshire in 2020 and 2019. Our Massachusetts private passenger automobile rates include a 13% commission rate for agents.


Line of Business	****	Effective Date	****	Rate Change
Massachusetts Private Passenger Automobile		May 1, 2020		-0.6%
New Hampshire Homeowner		December 1, 2019		3.8%
Massachusetts Homeowner		November 1, 2019		2.2%
Massachusetts Private Passenger Automobile		September 1, 2019		1.9%
Massachusetts Commercial Automobile		June 1, 2019		3.1%
New Hampshire Commercial Automobile		March 1, 2019		1.8%

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 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,			****
		2020		2019
GAAP ratios:
Loss ratio	****	61.0	%	64.8	%
Expense ratio	****	31.9		31.1
Combined ratio	****	92.9	%	95.9	%

Share-Based Compensation

On April 2, 2018, the Company’s Board of Directors adopted the Safety Insurance Group, Inc. 2018 Long-Term Incentive Plan (“the 2018 Plan”), which was subsequently approved by our shareholders at the 2018 Annual Meeting of Shareholders. The 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 of in tandem with other awards. Eligibility to participate includes officers, directors, employees and other individuals who provide bona fide services to the Company. The 2018 Plan supersedes the Company’s 2002 Management Omnibus Incentive Plan (“the 2002 Incentive Plan”).

The 2018 Plan established an initial pool of 350,000 shares of common stock available for issuance to our employees and other eligible participants.

The maximum number of shares of common stock between both the 2018 Plan and 2002 Incentive Plan with respect to which awards may be granted is 2,850,000. No further grants will be allowed under the 2002 Incentive Plan. At March 31, 2020, there were 234,170 shares available for future grant.

Table of Contents A summary of share based awards granted under the Incentive Plan during the three months ended March 31, 2020 is as follows:


Type of	****	****	****	Number of	****		Fair	****	****
Equity				Awards			Value per
Awarded	****	Effective Date	****	Granted	****		Share (1)		Vesting Terms
RS - Service	****	February 26, 2020	****	28,799	****	$	90.50	(1) ****	3 years, 30%-30%-40%
RS - Performance	****	February 26, 2020	****	24,062	****	$	90.50	(1) ****	3 years, cliff vesting (3)
RS	****	February 26, 2020	****	5,000	****	$	90.50	(1) ****	No vesting period (2)
RS - Performance	****	February 26, 2020	****	12,587	****	$	90.50	(1) ****	No vesting period (4)
RS	****	March 27, 2020	****	1,000	****	$	76.60	(1) ****	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.
---	---
(4)	The shares represent 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 2002 Incentive Plan.
---	---

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 2020 that protects us in the event of a "137-year storm" (that is, a storm of a severity expected to occur once in a 137-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 2020, we have purchased four layers of excess catastrophe reinsurance providing $615,000 of coverage for property losses in excess of $50,000 up to a maximum of $665,000. Our reinsurers’ co-participation is 50.0% of $50,000 for the 1st layer, 80.0% of $50,000 for the 2nd layer, 80.0% of $250,000 for the 3rd layer and 80.0% of $265,000 for the 4th layer.

We also have casualty excess of loss reinsurance for large casualty losses occurring in our automobile, homeowners, dwelling fire, business owners, and commercial package 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 $2,000 up to a maximum of $20,760, for our homeowners, business owners, and commercial package policies. 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 28

Table of Contents that cannot be placed in the voluntary market are shared by all insurers writing homeowners insurance in Massachusetts. The FAIR Plan’s exposure to catastrophe losses increased and as a result, the FAIR Plan decided to buy reinsurance to reduce their exposure to catastrophe losses. On July 1, 2019, the FAIR Plan purchased $2,000,000 of catastrophe reinsurance for property losses with retention of $100,000.

At March 31, 2020, we had $152,361 recoverable from CAR comprising of loss adjustment expense reserves, unearned premiums and reinsurance recoverable.

Effects of Inflation

We do not believe that inflation has had a material effect on our consolidated results of operations, except insofar as inflation may affect interest rates.

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 generally accepted accounting principles (“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 losses on investments, net impairment losses on investments, changes in net unrealized gains on equity investments, credit loss expense and taxes related thereto. Net income and earnings per diluted share are the GAAP financial measures that are most directly comparable to non-GAAP operating income and non-GAAP operating income per diluted share, respectively. A reconciliation of the GAAP financial measures to these non-GAAP measures is included in the financial highlights below.

Table of Contents **** Results of Operations

Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019

The following table shows certain of our selected financial results.


	****	Three Months Ended March 31,				****
	****	2020		2019		****
Direct written premiums		$	197,346	$	203,387
Net written premiums		$	188,958	$	189,938
Net earned premiums		$	197,895	$	194,491
Net investment income		****	10,710		11,751
Earnings from partnership investments		****	1,339		835
Net realized losses on investments		****	(631)		(164)
Change in net unrealized gains on equity investments			(29,988)		11,801
Net impairment losses on investments		****	—		(220)
Credit loss expense		****	(2,510)		—
Finance and other service income		****	4,229		4,085
Total revenue		****	181,044		222,579
Loss and loss adjustment expenses		****	120,746		126,027
Underwriting, operating and related expenses		****	63,082		60,434
Interest expense		****	47		22
Total expenses		****	183,875		186,483
(Loss) income before income taxes		****	(2,831)		36,096
Income tax (benefit) expense		****	(841)		6,150
Net (loss) income		$	(1,990)	$	29,946
(Loss) earnings per weighted average common share:
Basic		$	(0.13)	$	1.97
Diluted		$	(0.13)	$	1.95
Cash dividends paid per common share		$	0.90	$	0.80

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

Net (loss) income		$	(1,990)	$	29,946
Exclusions from net income:
Net realized losses on investments			631		164
Change in net unrealized gains on equity investments			29,988		(11,801)
Net impairment losses on investments			-		220
Credit loss expense			2,510		-
Income tax (benefit) expense on exclusions from net income			(6,957)		2,398
Non-GAAP Operating income		$	24,182	$	20,927

Net (loss) income per diluted share		$	(0.13)	$	1.95
Exclusions from net income:
Net realized losses on investments			0.04		0.01
Change in net unrealized gains on equity investments			1.95		(0.77)
Net impairment losses on investments			-		0.01
Credit loss expense			0.16		-
Income tax (benefit) expense on exclusions from net income			(0.45)		0.16
Non-GAAP Operating income per diluted share		$	1.57	$	1.36

Direct Written Premiums. Direct written premiums for the three months ended March 31, 2020 decreased by $6,041, or 3.0%, to $197,346 from $203,387 for the comparable 2019 period. The decrease is primarily in our commercial automobile line of business and is a result of changes made by CAR to eligibility requirements which impacted the number of policies that we handle as a Servicing Carrier to the ceded pool. This results in a commensurate decrease in ceded written premium to and assumed from these programs.

Net Written Premiums. Net written premiums for the three months ended March 31, 2020 decreased by $980, or 0.5%, to $188,958 from $189,938 for the comparable 2019 period.

Net Earned Premiums. Net earned premiums for the three months ended March 31, 2020 increased by $3,404, or 1.8%, to $197,895 from $194,491 for the comparable 2019 period. 30

Table of Contents

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


	Three Months Ended March 31,
	2020		****	2019		****
Written Premiums
Direct	$	197,346		$	203,387
Assumed	****	7,978			8,245
Ceded	****	(16,366)			(21,694)
Net written premiums	$	188,958		$	189,938

Earned Premiums
Direct	$	210,151		$	207,308
Assumed	****	9,102			9,315
Ceded	****	(21,358)			(22,132)
Net earned premiums	$	197,895		$	194,491

Net Investment Income. Net investment income for the three months ended March 31, 2020 decreased by $1,041, or 8.9%, to $10,710 from $11,751 for the comparable 2019 period. The decrease is a result of fixed maturity amortization resulting from prepayment activity on certain residential mortgage-backed securities. Net effective annualized yield on the investment portfolio was 3.1% for the three months ended March 31, 2020 compared to 3.5% for the three months ended March 31, 2019. The investment portfolio’s duration was 3.2 years at March 31, 2020 compared to 3.3 years at December 31, 2019.

Earnings from Partnership Investments. Earnings from partnership investments was $1,339 for the three months ended March 31, 2020 compared to $835 for the comparable 2019 period. The three months ended March 31, 2020 earnings reflects an increase in investment appreciation compared to the 2019 period.

Net Realized losses on Investments. Net realized losses on investments was $631 for the three months ended March 31, 2020 compared to $164 for the comparable 2019 period.

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


		As of March 31, 2020

	****	Cost or		****	Allowance for		****	Gross Unrealized		****	Estimated		****	Estimated
		Amortized			Expected Credit									Fair
		Cost			Losses			Gains			Losses (3)			Value
U.S. Treasury securities		$	1,823		$	—		$	60		$	—		$	1,883
Obligations of states and political subdivisions		****	224,800		****	—		****	8,924		****	(34)		****	233,690
Residential mortgage-backed securities (1)		****	288,122		****	—		****	12,998		****	(103)		****	301,017
Commercial mortgage-backed securities		****	105,678		****	—		****	3,553		****	(165)		****	109,066
Other asset-backed securities		****	26,659		****	—		****	63		****	(1,415)		****	25,307
Corporate and other securities		****	512,777		****	(2,510)		****	9,127		****	(24,902)		****	494,492
Subtotal, fixed maturity securities		****	1,159,859		****	(2,510)		****	34,725		****	(26,619)		****	1,165,455
Equity securities (2)		****	153,359		****	—		****	13,874		****	(17,345)		****	149,888
Other invested assets (4)		****	41,881		****	—		****	—		****	—		****	41,881
Totals		$	1,355,099		$	(2,510)		$	48,599		$	(43,964)		$	1,357,224

(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)Our investment portfolio included 733 securities in an unrealized loss position at March 31, 2020.

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

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


		As of March 31, 2020
	****		Estimated	****	****
			Fair Value		Percent
U.S. Treasury securities and obligations of U.S. Government agencies	****	$	316,382	****	27.1	%
Aaa/Aa			286,174	****	24.6
A			236,953	****	20.3
Baa			168,409	****	14.5
Ba			58,852	****	5.0
B			73,237	****	6.3
Caa/Ca			3,376	****	0.3
Not rated			22,072	****	1.9
Total		$	1,165,455	****	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, 2020, 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, 2020.


		As of March 31, 2020
		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		$	—		$	—		$	—		$	—		$	—		$	—
Obligations of states and political subdivisions		****	656		****	34		****	—		****	—		****	656		****	34
Residential mortgage-backed securities		****	20,492		****	99		****	195		****	4		****	20,687		****	103
Commercial mortgage-backed securities		****	22,272		****	165		****	—		****	—		****	22,272		****	165
Other asset-backed securities		****	14,840			534			8,202			881			23,042			1,415
Corporate and other securities		****	233,543		****	23,185		****	8,758		****	1,717		****	242,301		****	24,902
Subtotal, fixed maturity securities		****	291,803		****	24,017		****	17,155		****	2,602		****	308,958		****	26,619
Equity securities		****	67,644		****	13,991		****	9,909		****	3,354		****	77,553		****	17,345
Total temporarily impaired securities		$	359,447		$	38,008		$	27,064		$	5,956		$	386,511		$	43,964

During the three months ended March 31, 2019, the company recognized $220 in credit impairments under the previous accounting guidance in ASC 320, Investments – Debt and Equity Securities.

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. 32

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

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, 2020 increased by $144, or 3.5%, to $4,229 from $4,085 for the comparable 2019 period.

Loss and Loss Adjustment Expenses. Loss and loss adjustment expenses incurred for the three months ended March 31, 2020 decreased by $5,281, or 4.2%, to $120,746 from $126,027 for the comparable 2019 period expense. The decrease is primarily due to favorable winter weather related activity in 2020.

Our GAAP loss ratio for the three months ended March 31, 2020 decreased to 61.0% from 64.8% for the comparable 2019 period. Our GAAP loss ratio excluding loss adjustment expenses for the three months ended March 31, 2020 was 51.7% compared to 56.3% for the comparable 2019 period. Total prior year favorable development included in the pre-tax results for the three months ended March 31, 2020 was $9,584 compared to $11,980 for the comparable 2019 period.

Underwriting, Operating and Related Expenses. Underwriting, operating and related expenses for the three months ended March 31, 2020 increased by $2,648, or 4.4%, to $63,082 from $60,434 for the comparable 2019 period. Our GAAP expense ratio for the three months ended March 31, 2020 increased to 31.9% from 31.1% for the comparable 2019 period. The increase is driven by costs associated with various system modernization in our claims, billing and underwriting areas as well as a decrease in certain expense allowances offered under the Servicing Carrier program that have decreased with the related written premium as noted above.

Interest Expense. Interest expense was $47 for the three months ended March 31, 2020 compared to $22 for the comparable 2019 period. The credit facility commitment fee included in interest expense was $19 for the three months ended March 31, 2020 and 2019*.*

Income Tax (Benefit) Expense. Our effective tax rate was 29.7% and 17.0% for the quarters ended March 31, 2020 and 2019, respectively. The effective tax rate for the quarter ended March 31, 2020 is higher than the statutory rate due to the tax benefit related to the impact of stock-based compensation which increased the tax benefit. The effective tax rate for the quarter ended March 31, 2019 was lower than the statutory rate primarily due to the effects of tax-exempt investment income and the impact of stock-based compensation.

Net (Loss) Income. Net loss for the three months ended March 31, 2020 was $1,990 compared to net income of $29,946 for the comparable 2019 period. The decrease is driven by the change in unrealized gains on equity investments during the quarter.

Non-GAAP Operating Income. Non-GAAP operating income as defined above was $24,182 for the three months ended March 31, 2020 compared to $20,927 for the comparable 2019 period. The increase in Non-GAAP operating income was primarily the result of a decrease in loss and loss adjustment expenses compared to the prior period.

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 $28,515 and $8,012 during the three months ended March 31, 2020 and 2019, 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. Net cash used for operating activities during the three months ended March 31, 2020 and March 31, 2019 was the result of the timing of expense payments and changes in other liabilities which is driven by the reclassification of cash to offset outstanding claims checks. Positive operating cash flows are expected in the future to meet our liquidity requirements.

Net cash provided by investing activities was $20,296 and $6,286 during the three months ended March 31, 2020 and 2019, respectively. Fixed maturities, equity securities, and other invested assets purchased were $47,813 for the three months ended March 31, 2020 compared to $38,308 for the comparable prior year period. Proceeds from maturities, redemptions, calls and sales, of securities were $71,086 during the three months ended March 31, 2020 compared to $45,721 for the comparable prior year period.

Net cash provided by financing activites was $5,379 during the three months ended March 31, 2020 compared to net cash used for financing activities of $12,964 during the three months ended March 31, 2019. 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. The proceeds from this borrowing were partially offset by dividend payments to shareholders and share buybacks during the three months ended March 31, 2010. Net cash used for financing activities during the three months ended March 31, 2019 is comprised 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

For information regarding Recent Accounting Pronouncements, please refer to Item 1- Financial Statements, Note 2, Recent Accounting Pronouncements, of this Form 10-Q.

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 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 34

Table of Contents 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, 2019, the statutory surplus of Safety Insurance was $704,177, and its statutory net income for 2019 was $75,469. As a result, a maximum of $75,469 is available in 2020 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 $628,708 at December 31, 2019. During the three months ended March 31, 2020, Safety Insurance paid dividends to Safety of $12,961.

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 2020 were as follows:


	****	****	****	****	****	****		****	Total
Declaration		Record		Payment		Dividend per			Dividends Paid
Date		Date		Date		Common Share			and Accrued
February 14, 2020	****	March 2, 2020	****	March 16, 2020	****	$	0.90	****	$	13,872

On May 6, 2020, our Board approved and declared a quarterly cash dividend of $0.90 per share which will be paid on June 15, 2020 to shareholders of record on June 1, 2020. We plan to continue to declare and pay quarterly cash dividends in 2020, depending on our financial position and the regularity of our cash flows.

On August 3, 2007, the Board of Directors approved a share repurchase program of up to $30,000 of the Company’s outstanding common shares. As of March 31, 2020, the Board of Directors had cumulatively authorized increases to the existing share repurchase program of up to $150,000 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. As of March 31, 2020, the Company had purchased 2,422,862 shares of common stock at a cost of $94,227. As of December 31, 2019, the Company had purchased 2,279,570 shares of common stock at a cost of $83,835.

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, 2019, the Insurance Subsidiaries had total adjusted capital of $704,177, which is in excess of amounts requiring company or regulatory action at any prescribed risk-based capital 35

Table of Contents action level. Minimum statutory capital and surplus, or company action level risk-based capital, was $184,601 at December 31, 2019.

Off-Balance Sheet Arrangements

We have no material obligations under a guarantee contract meeting the characteristics identified in 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 Accounting Standards Codification (“ASC”) 944, Financial Services – Insurance.

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 36

Table of Contents 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 $453,696 to $504,483 as of March 31, 2020. 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 $487,356 as of March 31, 2020.

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, 2020.


			As of March 31, 2020
Line of Business	****	Low		****	Recorded		****	High
Private passenger automobile	****	$	187,875	****	$	197,889	****	$	200,053
Commercial automobile			98,076			105,168			108,180
Homeowners			87,642			92,595			92,965
All other			80,103			91,704			103,285
Total	****	$	453,696	****	$	487,356	****	$	504,483

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, 2020.


			As of March 31, 2020
Line of Business	****	Case		****	IBNR		****	Total
Private passenger automobile	****	$	244,011	****	$	(46,129)		$	197,882
CAR assumed private passenger auto			1			6			7
Commercial automobile			55,585			10,881			66,466
CAR assumed commercial automobile			20,680			18,023			38,703
Homeowners			78,034			4,667			82,701
FAIR Plan assumed homeowners			3,504			6,390			9,894
All other			46,662			45,041			91,703
Total net reserves for losses and LAE	****	$	448,477	****	$	38,879	****	$	487,356

At March 31, 2020, our total IBNR reserves for our private passenger automobile line of business was comprised of ($65,975) related to estimated ultimate decreases in the case reserves, including anticipated recoveries (i.e. salvage and subrogation), and $19,846 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 46.6% of our total reserves for CAR assumed commercial automobile business as of March 31, 2020, 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 64.6% of our total reserves for FAIR Plan assumed homeowners at March 31, 2020, 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, 2020.


			As of March 31, 2020
Line of Business	****		Retained	****		Assumed	****		Net
Private passenger automobile	****	$	197,882
CAR assumed private passenger automobile				****	$	7
Net private passenger automobile							****	$	197,889
Commercial automobile			66,466
CAR assumed commercial automobile						38,703
Net commercial automobile									105,169
Homeowners			82,701
FAIR Plan assumed homeowners						9,894
Net homeowners									92,595
All other			91,703			—			91,703
Total net reserves for losses and LAE	****	$	438,752	****	$	48,604	****	$	487,356

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. 38

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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, 2020, a 1 percentage-point change in the loss and LAE ratio would result in a change in reserves of $1,979. Each 1 percentage-point change in the loss and loss expense ratio would have had a $1,564 effect on net income, or $0.10 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, 2020. 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. A 1 percentage-point change in both our key assumptions would change estimated reserves within a range of plus or minus 2 percentage-points. 39

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	****	-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	****	$	(3,958)		$	(1,979)		$	—
Estimated increase in net income			3,127			1,563			—
No Change in Severity
Estimated (decrease) increase in reserves			(1,979)			—			1,979
Estimated increase (decrease) in net income			1,563			—			(1,563)
+1 Percent Change in Severity
Estimated increase in reserves			—			1,979			3,958
Estimated decrease in net income			—			(1,563)			(3,127)

Commercial automobile retained loss and LAE reserves
-1 Percent Change in Severity
Estimated decrease in reserves			(1,329)			(665)			—
Estimated increase in net income			1,050			525			—
No Change in Severity
Estimated (decrease) increase in reserves			(665)			—			665
Estimated increase (decrease) in net income			525			—			(525)
+1 Percent Change in Severity
Estimated increase in reserves			—			665			1,329
Estimated decrease in net income			—			(525)			(1,050)

Homeowners retained loss and LAE reserves
-1 Percent Change in Severity
Estimated decrease in reserves			(1,654)			(827)			—
Estimated increase in net income			1,307			653			—
No Change in Severity
Estimated (decrease) increase in reserves			(827)			—			827
Estimated increase (decrease) in net income			653			—			(653)
+1 Percent Change in Severity
Estimated increase in reserves			—			827			1,654
Estimated decrease in net income			—			(653)			(1,307)

All other retained loss and LAE reserves
-1 Percent Change in Severity
Estimated decrease in reserves			(1,834)			(917)			—
Estimated increase in net income			1,449			724			—
No Change in Severity
Estimated (decrease) increase in reserves			(917)			—			917
Estimated increase (decrease) in net income			724			—			(724)
+1 Percent Change in Severity
Estimated increase in reserves			—			917			1,834
Estimated decrease in net income			—			(724)			(1,449)

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.

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, 2020. 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. 40

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	****	-1 Percent		****	+1 Percent
		Change in			Change in
		Estimation			Estimation
CAR assumed private passenger automobile
Estimated (decrease) increase in reserves	****	$	—		$	—
Estimated increase (decrease) in net income			—			—
CAR assumed commercial automobile
Estimated (decrease) increase in reserves			(387)			387
Estimated increase (decrease) in net income			306			(306)
FAIR Plan assumed homeowners
Estimated (decrease) increase in reserves			(99)			99
Estimated increase (decrease) in net income			78			(78)

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 $9,584 and $11,980 during the three months ended March 31, 2020 and 2019, 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, 2020 and 2019. 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	****	2020		****	2019
2010 & prior		$	(125)		$	(244)
2011			(100)			(57)
2012			(396)			(311)
2013			1			(742)
2014			(525)			(1,074)
2015			(875)			(1,568)
2016			(2,442)			(3,245)
2017			(1,949)			(4,385)
2018			(2,238)			(354)
2019			(935)			—
All prior years	****	$	(9,584)		$	(11,980)

The decreases in prior years’ reserves during the three months ended March 31, 2020 and 2019 resulted from re-estimations of prior year ultimate loss and LAE liabilities. The 2020 decrease is composed of reductions of $3,950 in our retained private passenger automobile reserves, $755 in our retained commercial automobile reserves, $3,864 in our retained homeowners reserves and our retained other lines reserves. The 2019 decrease is primarily composed of reductions of $6,356 in our retained private passenger automobile reserves, $914 in our retained commercial automobile reserves, $3,629 in our retained homeowners reserves and $791 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, 2020.


	****	Private Passenger		****	Commercial		****	****		****	****		****	****
Accident Year		Automobile			Automobile			Homeowners			All Other			Total
2010 & prior		$	(79)		$	1		$	(7)		$	(40)		$	(125)
2011			(12)			—			(1)			(87)			(100)
2012			82			(1)			(242)			(235)			(396)
2013			50			58			(2)			(105)			1
2014			(7)			(329)			(3)			(186)			(525)
2015			(838)			53			(68)			(22)			(875)
2016			(1,128)			(795)			(568)			49			(2,442)
2017			(987)			(210)			(778)			26			(1,949)
2018			(1,125)			(82)			(1,006)			(25)			(2,238)
2019			94			(226)			(753)			(50)			(935)
All prior years	****	$	(3,950)		$	(1,531)		$	(3,428)		$	(675)		$	(9,584)

To further clarify the effects of changes in our reserve estimates for CAR and other residual markets, the next two tables break out the information in the table above by source of the business (i.e., non-residual market vs. residual market).

The following table presents information by line of business for prior year development of retained reserves for losses and LAE for the three months ended March 31, 2020 that is, all our reserves except for business ceded or assumed from CAR and other residual markets.


	****		Retained	****		Retained	****		****	****		****	****		****
			Private Passenger			Commercial			Retained			Retained
Accident Year			Automobile			Automobile			Homeowners			All Other			Total
2010 & prior		$	(79)		$	1		$	(7)		$	(40)		$	(125)
2011			(12)			—			(1)			(87)			(100)
2012			82			(1)			(242)			(235)			(396)
2013			50			100			(2)			(105)			43
2014			(7)			(289)			(3)			(186)			(485)
2015			(838)			100			(4)			(22)			(764)
2016			(1,128)			(747)			(515)			49			(2,341)
2017			(987)			(122)			(778)			26			(1,861)
2018			(1,125)			34			(937)			(25)			(2,053)
2019			94			169			(700)			(50)			(487)
All prior years	****	$	(3,950)		$	(755)		$	(3,189)		$	(675)		$	(8,569)

The following table presents information by line of business for prior year development of reserves assumed from residual markets for losses and LAE for the three months ended March 31, 2020.


	****		CAR Assumed	****		CAR Assumed	****		****	****		****
			Private Passenger			Commercial			FAIR Plan
Accident Year			Automobile			Automobile			Homeowners			Total
2010 & prior	****	$	—	****	$	—	****	$	—	****	$	—
2011			—			—			—			—
2012			—			—			—			—
2013			—			(42)			—			(42)
2014			—			(40)			—			(40)
2015			—			(47)			(64)			(111)
2016			—			(48)			(53)			(101)
2017			—			(88)			—			(88)
2018			—			(116)			(69)			(185)
2019			—			(395)			(53)			(448)
All prior years	****	$	—	****	$	(776)	****	$	(239)		$	(1,015)

The improved retained 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 42

Table of Contents property damage case reserves. Our retained other than auto and homeowners line 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.”

Investment Impairments.

For further information, see “Results of Operations: Net Impairment Losses on Investments.”

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;
---	---
●	The impact of COVID-19 and related economic conditions, including the Company's assessment of the vulnerability of certain categories of investments due to the economic disruptions associated with COVID-19;
---	---
●	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, 43

Table of Contents 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 possibility that the Commissioner may approve future Rule changes that change the operation of the residual market;
---	---
●	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;
---	---
●	The effects of emerging claim and coverage issues on the Company’s business are uncertain, and court decisions or legislative or regulatory changes that take place after the Company issues its policies, including those taken in response to COVID-19 (such as requiring insurers to cover business interruption claims irrespective of terms or other conditions included in the policies that would otherwise preclude coverage), can result in an unexpected increase in the number of claims and have a material adverse impact on the Company's results of operations;
---	---
●	The impact of COVID-19 and related risks, including on the Company's employees, agents or other key partners, could materially affect the Company's results of operations, financial position and/or liquidity; and
---	---
●	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 2019 Annual Report on Form 10-K for the year ended December 31, 2019.
---	---

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, 2020
Estimated fair value	****	$	1,202,375	****	$	1,165,455	****	$	1,126,621
Estimated increase (decrease) in fair value	****	$	36,920	****	$	—	****	$	(38,834)

With respect to floating rate debt, we are exposed to the effects of changes in prevailing interest rates. At March 31, 2020, 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 2020, 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 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, 45

Table of Contents 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

Other than as described below, there have been no subsequent material changes from the risk factors previously disclosed in the Company’s 2019 Annual Report on Form 10-K.

The impact of COVID-19 and the related risks could have a material impact on our results of operations.

In March 2020, the World Health Organization declared a worldwide pandemic regarding the outbreak of COVID-19. The pandemic has affected the states where we operate causing significant economic effects including temporary closures of many businesses and reduced consumer activity due to shelter-in-place, stay-at-home and other governmental regulations.

Our premium revenues could be adversely impacted from the economic consequences as consumer behaviors change due to self-isolation, travel limitations and restrictions on non-essential businesses. Furthermore, these restrictions could impair our independent agents’ ability to sell our products and serve our policyholders, which could result in significant declines in premium revenues.

The COVID-19 pandemic could also have a material impact on losses and loss adjustment expenses. Risks to our business include legislation or court decisions that extend business interruption coverage for COVID-19 when there was no direct physical damage or loss to property. These actions would extend coverage beyond the terms and conditions we intended for those policies, meaning we would be forced to pay claims when no coverage was contemplated and for which no premium was collected. These amounts could have a material, adverse impact on our business, financial condition, results of operations or cash flows. There is also the potential of significant litigation brought by policyholders, including but not limited to, class action lawsuits. Frequency and severity could also increase with respect to our auto and property coverages due to, among other things, changes in business practices and individual behaviors resulting from the stay-at-home and social distancing measures.

The disruption in the financial markets related to COVID-19 has contributed to net realized investment losses and negative impacts related to changes in fair value on our equity investments and, to a lesser extent, impairments in our fixed-income investment portfolio. In the event that these conditions recur or result in a prolonged economic downturn, they could adversely impact our financial condition, results of operations or cash flows. Such adverse impacts may be material.

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

Item 3. Defaults upon Senior Securities - None.

Table of Contents Item 4. Mine Safety Disclosures — None.

Item 5. Other Information - None.

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

3.2.1<br><br><br><br>11.0	<br><br>	Amended and Restated Bylaws of Safety Insurance Group, Inc.(2)<br><br><br><br>Statement re: Computation of Per Share Earnings (1)

31.1		CEO Certification Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes Oxley Act of 2002(2)

31.2		CFO Certification Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes Oxley Act of 2002(2)

32.1		CEO Certification Pursuant to U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes Oxley Act of 2002(2)

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)
<br><br>104		<br><br>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.

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 8, 2020	SAFETY INSURANCE GROUP, INC. (Registrant)



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

		saft\_Ex3.2.1

Exhibit 3.2.1

AMENDED AND RESTATED BYLAWS

SAFETY INSURANCE GROUP, INC.

(herein called the “Corporation”)

As adopted on February 26, 2020 and effective on the record date of the 2020 Definitive Proxy Statement

ARTICLE I

OFFICES

Section 1.Registered Office. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware and the name and address of its registered agent is Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware.

Section 2. Other Offices. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors of the Corporation (the “Board of Directors”) may from time to time determine or the business of the Corporation may require.

ARTICLE II

MEETINGS OF STOCKHOLDERS

Section 1.Place of Meetings. Meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, if any, either within or without the State of Delaware, as shall be designated from time to time by resolution of the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof.

Section 2.Annual Meetings. The annual meetings of stockholders (the “Annual Meeting”) shall be held on such date, time and place as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which meetings the stockholders, subject to the provisions of the Certificate of Incorporation, shall elect a Board of

Directors, as set forth in Section 1 of Article III, and transact such other business as may properly be brought before the meeting. Written notice of the Annual Meeting stating the place, date, and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten (10) days nor more than sixty (60) days before the date of the meeting. Such notice may be provided to each stockholder entitled to vote at such meeting electronically, as permitted by Delaware General Corporation Law (“DGCL”) Section 232.

No business may be transacted at an Annual Meeting, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise properly brought before the Annual Meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (c) otherwise properly brought before the Annual Meeting by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 2 and on the record date for the determination of stockholders entitled to vote at such Annual Meeting and (ii) who complies with the notice procedures set forth in this Section 2.

In addition to any other applicable requirements, for business to be properly brought before an Annual Meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation.

To be timely, a stockholder’s notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than one-hundred and twenty (120) days prior to the anniversary date of the date of the proxy statement for the immediately preceding Annual Meeting; provided, however, that in the event that the Annual Meeting is called for a date that is not within thirty (30) days before or after the anniversary date of the immediately preceding Annual Meeting, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which public disclosure of the date of the Annual Meeting was first made. To be in proper written form, a stockholder’s notice to the Secretary must set forth as to each matter such stockholder proposes to bring before the Annual Meeting (i) a brief description of the business desired to be brought before the Annual Meeting and the reasons for conducting such business at the Annual Meeting, (ii) the name and record address of such stockholder, (iii) the class or series

and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (v) a representation that such stockholder intends to appear in person or by proxy at the Annual Meeting to bring such business before the meeting.

No business shall be conducted at the Annual Meeting except business brought before the Annual Meeting in accordance with the procedures set forth in this Section 2, provided, however, that, once business has been properly brought before the Annual Meeting in accordance with such procedures, nothing in this Section 2 shall be deemed to preclude discussion by any stockholder of any such business. If the Chairperson of an Annual Meeting determines that business was not properly brought before the Annual Meeting in accordance with the foregoing procedures, the Chairperson shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be discussed or transacted.

Section 3.Special Meetings. Unless otherwise prescribed by law or by the Certificate of Incorporation, Special Meetings of Stockholders (“Special Meetings”), for any purpose or purposes, may be called by the Board of Directors or the President. Special Meetings may not be called by any other person or persons. Written notice of a Special Meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called shall be given not less than ten (10) days nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. Such notice may be provided to each stockholder entitled to vote at such meeting electronically, as permitted by DGCL Section 232.

Section 4.Quorum. Except as otherwise required by law, these Bylaws or by the Certificate of Incorporation, holders of a majority of the capital stock issued and entitled to vote thereat present in person or represented by proxy shall constitute a quorum at all meetings of the stockholders for the transaction of business. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting in accordance with Section 5 of this Article II.

Section 5.Adjournments. Any meeting of the stockholders, annual or special, may be adjourned from time to time to reconvene at the same or some other place, if any, and notice need not be given of any such adjourned meeting if the time and place, if any, thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. If after the adjournment a new record date is fixed for stockholders entitled to vote at the adjourned meeting, the Board of Directors shall fix a new record date for notice of the adjourned meeting and shall give notice of the adjourned meeting to each stockholder of record entitled to vote at the adjourned meeting as of the record date fixed for notice of the adjourned meeting.

Section 6.Voting. Unless otherwise required by law, the Certificate of Incorporation of these Bylaws, any question brought before any meeting of stockholders shall be decided by the vote of the holders of a majority of the stock represented and entitled to vote thereat. Such votes may be cast in person or by proxy, but no proxy shall be voted on or after three years from its date, unless such proxy provides for a longer period. The Board of Directors, in its discretion, or the officer of the Corporation presiding at a meeting of stockholders in his or her discretion, may require that any votes cast at such meeting shall be cast by written ballot.

Section 7.No Consent of Stockholders in Lieu of Meeting. Any action required or permitted to be taken at any annual or special meeting of stockholders may be taken only upon the vote of the stockholders at an annual or special meeting duly noticed and called, as provided in these Bylaws, and may not be taken by a written consent of the stockholders pursuant to the DGCL.

Section 8.List of Stockholders Entitled to Vote. The officer of the Corporation who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within

the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder of the Corporation who is present.

Section 9.Stock Ledger. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 8 of this Article II or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders.

ARTICLE III

DIRECTORS

Section 1.Number and Election of Directors. Subject to the rights, if any, of holders of preferred stock of the Corporation to elect directors of the Corporation, the Board of Directors shall consist of not less than one nor more than fourteen members with the exact number of directors to be determined from time to time exclusively by resolution duly adopted by the Board of Directors. Directors shall be elected by a majority of the votes cast at the Annual Meeting; provided, however, that, if the number of nominees for director exceeds the number of directors to be elected, directors shall be elected by a plurality of the votes cast at the Annual Meeting. For the purposes of this Section 1, a majority of the votes cast means that the number of shares voted “for” a nominee must exceed the votes cast “against” such nominee’s election (with “abstentions” not counted as a vote cast either “for” or “against” that nominee’s election). If a nominee for director who is not an incumbent director does not receive a majority of the votes cast, the nominee shall not be elected. The Nominating and Governance Committee has established procedures under which a director standing for reelection in an uncontested election must tender a resignation conditioned on the incumbent director’s failure to receive a majority of the votes cast. If an incumbent director who is standing for re-election does not receive a majority of the votes cast, the Nominating and Governance Committee will make a recommendation to the Board of Directors on whether to accept or reject the resignation, or whether other action should be taken. The Board of Directors will act on the Committee’s recommendation and publicly disclose its decision and the rationale behind it within ninety (90) days from the date of the certification of the election results. The incumbent director who fails to

receive a majority vote will not participate in the Committee’s recommendation or the Board of Directors’ decision. Unless otherwise provided by the Certificate of Incorporation, each director so elected pursuant to this Section 1 shall hold office until the Annual Meeting for the year in which his or her term expires and until his or her successor is duly elected and qualified, or until his or her earlier death, resignation, retirement, disqualification or removal. Any director may resign at any time effective upon giving written notice to the Corporation, unless the notice specifies a later time for the effectiveness of such resignation. Directors need not be stockholders.

Section 2.Nomination of Directors. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation, except as may be otherwise provided in the Certificate of Incorporation= with respect to the right of holders of preferred stock of the Corporation to nominate and elect a specified number of directors in certain circumstances. Nominations of persons for election to the Board of Directors may be made at any Annual Meeting or at any Special Meeting called by the Board of Directors or the President for the purpose of electing directors (a) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (b) by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 2 and on the record date for the determination of stockholders entitled to vote at such Annual or Special Meeting and (ii) who complies with the notice procedures set forth in this Section 2. In addition to any other applicable requirements, for a nomination to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation.

To be timely, a stockholder’s notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation (a) in the case of an Annual Meeting, not less than one-hundred and twenty (120) days prior to the anniversary date of the date of the proxy statement for the immediately preceding Annual Meeting; provided, however, that in the event that the Annual Meeting is called for a date that is not within thirty (30) days before or after the anniversary date of the immediately preceding Annual Meeting, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which public disclosure of the date of the Annual Meeting

was first made; and (b) in the case of a Special Meeting called for the purpose of electing directors, not later than the close of business on the tenth (10th) day following the day on which public disclosure of the date of the Special Meeting was first made.

To be in proper written form, a stockholder’s notice to the Secretary must set forth (a) as to each person whom the stockholder proposes to nominate for election as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by the person and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other filing required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving the notice (i) the name and record address of such stockholder, (ii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the Annual Meeting to nominate the persons named in its notice and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected.

No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 2. If the Chairperson of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the Chairperson shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded.

Section 3.Vacancies. Any vacancy on the Board of Directors, however created, may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director. Any director elected to fill a newly created directorship resulting from an increase in any class of directors shall hold office for a term that shall coincide with the remaining term of the other directors of that class. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same term as the remaining term of his or her predecessor.

Section 4.Duties and Powers. The business of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders.

Section 5.Meetings. The Board of Directors may hold meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the Board of Directors may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors. Special meetings of the Board of Directors may be called by the Chairperson, if there is one, the President, or any directors. Notice thereof stating the place, date and hour of the meeting shall be given to each director either by mail not less than forty-eight (48) hours before the date of the meeting, by telephone or electronic means on twenty-four (24) hours’ notice, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances.

Section 6.Quorum. Except as may be otherwise specifically provided by law, the Certificate of Incorporation or these Bylaws, at all meetings of the Board of Directors, a majority of the entire Board of Directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.

Section 7.Actions of Board. Unless otherwise provided by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the

Board of Directors or of any committee thereof may be taken without a meeting, if all the members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee.

Section 8.Meetings by Means of Conference Telephone. Unless otherwise provided by the Certificate of Incorporation or these Bylaws, members of the Board of Directors of the Corporation, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and be heard, and participation in a meeting pursuant to this Section 8 shall constitute presence in person at such meeting.

Section 9.Committees. The Board of Directors may, by resolution passed by a majority of the entire Board of Directors, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee. In the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any absent or disqualified member. Any committee, to the extent allowed by law and provided in the resolution establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation. Each committee shall keep regular minutes and report to the Board of Directors when required.

Section 10.Audit Committee. The Board of Directors, by resolution adopted by a majority of the whole Board of Directors may designate three or more directors to constitute an Audit Committee, to serve as such until the next annual meeting of the Board of Directors or until their respective successors are designated.

The Audit Committee will make recommendations to the Board of Directors regarding the selection of independent accountants, will review the scope of the independent accountants’ audit and the services provided by them, will review and evaluate the Corporation’s audit and control functions and will carry out its other responsibilities as set forth in an Audit Committee charter to be adopted by the Board of Directors.

Section 11.Compensation. At the discretion of the Board of Directors, the directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. At the discretion of the Board of Directors, members of special or standing committees may be allowed like compensation for attending committee meetings.

Section 12.Interested Directors. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his, her or their votes are counted for such purpose if (i) the material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (ii) the material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.

Section 13.Entire Board of Directors. As used in these Bylaws generally, the term “entire Board of Directors” means the total number of directors which the Corporation would have if there were no vacancies.

ARTICLE IV

OFFICERS

Section 1.General. The officers of the Corporation shall be chosen by the Board of Directors and shall include a President and a Secretary. The Board of Directors, in its discretion, may also choose a Chief Financial Officer, Assistant Chief Financial Officers, Controller, Chairperson of the Board of Directors (who must be a director), Treasurer, Assistant Treasurers and one or more Vice Presidents, Assistant Secretaries, and other officers. Any number of offices may be held by the same person, unless otherwise prohibited by law, the Certificate of Incorporation or these Bylaws. The officers of the Corporation need not be stockholders of the Corporation nor, except in the case of the Chairperson of the Board of Directors, need such officers be directors of the Corporation.

Section 2.Election. The Board of Directors at its first meeting held after each Annual Meeting of Stockholders shall elect the officers of the Corporation who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors; and all officers of the Corporation shall hold office until their successors are chosen and qualified, or until their earlier resignation or removal. Any officer elected by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. The salaries of all officers of the Corporation shall be fixed by the Board of Directors.

Section 3. Voting Securities Owned by the Corporation. Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the President or any Vice President and any such officer may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may own securities and

at any such meeting shall possess and may exercise any and all rights and power incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors may, by resolution, from time to time confer like powers upon any other person or persons.

Section 4.President. The President shall, subject to the control of the Board of Directors and, if there is one, the Chairperson of the Board of Directors, have general supervision of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. He or she shall execute all bonds, mortgages, contracts and other instruments of the Corporation requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except that the other officers of the Corporation may sign and execute documents when so authorized by these Bylaws, the Board of Directors, the Chairperson of the Board of Directors or the President. In the absence or disability of the Chairperson of the Board of Directors, or if there is none, the President shall preside at all meetings of the stockholders and the Board of Directors. The President shall also perform such other duties and may exercise such other powers as from time to time may be assigned to him or her by these Bylaws or by the Board of Directors.

Section 5.Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of stockholders and record all the proceedings thereat in a book or books to be kept for that purpose; the Secretary shall also perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or President, under whose supervision he or she shall be. If the Secretary shall be unable or shall refuse to cause to be given notice of all meetings of the stockholders and special meetings of the Board of Directors, and if there is no Assistant Secretary, then either the Board of Directors or the President may choose another officer to cause such notice to be given. The Secretary shall have custody of the seal of the Corporation and the Secretary or any Assistant Secretary, if there is one, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the signature of the Secretary or by the signature of any such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and

to attest the affixing by his or her signature. The Secretary shall see that all books, reports, statements, certificates and other documents and records required by law to be kept or filed are properly kept or filed, as the case may be.

Section 6.Assistant Secretaries. Except as may be otherwise provided in these Bylaws, Assistant Secretaries, if there are any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, any Vice President, if there is one, or the Secretary, and in the absence of the Secretary or in the event of his or her disability or refusal to act, shall perform the duties of the Secretary, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Secretary.

Section 7.Chief Financial Officer. The Chief Financial Officer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Chief Financial Officer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Chairperson of the Board, the President and the Board of Directors, at its regular meetings or when the Board of Directors so requires, an account of all transactions as Chief Financial Officer and of the financial condition of the Corporation. The Chief Financial Officer shall perform such other duties as may from time to time be prescribed by the Board of Directors, the Chairperson of the Board or the President.

Section 8.Assistant Chief Financial Officer. The Assistant Chief Financial Officer, or if there is more than one, the Assistant Chief Financial Officers, in the order determined by the Board of Directors (or if there is no such determination, then in the order of their election), shall, in the absence of the Chief Financial Officer or in the event of the Chief Financial Officer’s inability or refusal to act, perform the duties and exercise the powers of the Chief Financial Officer and shall perform such other duties and have such other powers as may from time to time be prescribed by the Board of Directors, the Chairperson of the Board, the President or the Chief Financial Officer.

Section 9.Controller. The Board of Directors may elect a Controller who shall be responsible for all accounting and auditing functions of the Corporation and who shall perform such other duties as may from time to time be required of him or her by the Board of Directors.

Section 10.Chairperson of the Board of Directors. The Chairperson of the Board of Directors, if there is one, shall preside at all meetings of the stockholders and of the Board of Directors. Except where by law the signature of the President is required, the Chairperson of the Board of Directors shall possess the same power as the President to sign all contracts, certificates and other instruments of the Corporation which may be authorized by the Board of Directors. During the absence or disability of the President, the Chairperson of the Board of Directors shall exercise all the powers and discharge all the duties of the President. The Chairperson of the Board of Directors shall also perform such other duties and may exercise such other powers as from time to time may be assigned to him or her by these Bylaws or by the Board of Directors.

Section 11.Treasurer. The Treasurer, if there is one, shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his or her transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, the Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his or her office and for the restoration to the Corporation, in case of his or her death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his or her possession or under his or her control belonging to the Corporation.

Section 12.Assistant Treasurers. Assistant Treasurers, if there are any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, any Vice President, or the Treasurer, if there is one, and in the absence of the Treasurer or in the event of his or her disability or refusal to act, shall perform the duties

of the Treasurer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Treasurer. If required by the Board of Directors, an Assistant Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his or her office and for the restoration to the Corporation, in case of his or her death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his or her possession or under his or her control belonging to the Corporation.

Section 13.Vice Presidents. At the request of the President or in his or her absence or in the event of his or her inability or refusal to act (and if there is no Chair of the Board of Directors), the Vice President or the Vice Presidents if there is more than one (in the order designated by the Board of Directors) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Each Vice President shall perform such other duties and have such other powers as the Board of Directors from time to time may prescribe. If there is no Chairperson of the Board of Directors and no Vice President, the Board of Directors shall designate the officer of the Corporation who, in the absence of the President or in the event of the inability or refusal of the President to act, shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President.

Section 14.Other Officers. Such other officers as the Board of Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any other officer of the Corporation the power to choose such other officers and to prescribe their respective duties and powers.

ARTICLE V

STOCK

Section 1.Form of Certificates. Every holder of stock in the Corporation shall be entitled to have a certificate signed, in the name of the Corporation (i) by the President, the Chairperson of the Board of Directors or a Vice President and (ii) by the Secretary or an

Assistant Secretary, or the Treasurer or any Assistant Treasurer of the Corporation, certifying the number of shares owned by him or her in the Corporation.

Section 2.Signatures. Where a certificate is countersigned by (i) a transfer agent other than the Corporation or its employee, or (ii) a registrar other than the Corporation or its employee, any other signature on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue.

Section 3.Lost Certificates. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or his or her legal representative, to advertise the same in such manner as the Board of Directors shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed.

Section 4.Transfers. Stock of the Corporation shall be transferable in the manner prescribed by law and in these Bylaws. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate or by his or her attorney lawfully constituted in writing and upon the surrender of the certificate therefor, which shall be cancelled before a new certificate shall be issued.

Section 5.Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall

not be more than sixty (60) days nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

Section 6.Beneficial Owners. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law.

ARTICLE VI

NOTICES

Section 1.Notices. Whenever written notice is required by law, the Certificate of Incorporation or these Bylaws to be given to any director, member of a committee or stockholder, such notice may be given by mail, addressed to such director, member of a committee or stockholder, at his or her address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Written notice may also be given personally or by electronic means.

Section 2.Waivers of Notice. Whenever any notice is required by law, the Certificate of Incorporation or these Bylaws to be given to any director, member of a committee or stockholder, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto.

ARTICLE VII

GENERAL PROVISIONS

Section 1.Dividends. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of

Directors at any regular or special meeting, and may be paid in cash, in property, or in shares of the capital stock. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for any proper purpose, and the Board of Directors may modify or abolish any such reserve.

Section 2.Disbursements. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate.

Section 3.Fiscal Year. The fiscal year of the Corporation shall be the calendar year ending on December 31.

Section 4.Corporate Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words “Corporate Seal, Delaware.” The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.

ARTICLE VIII

INDEMNIFICATION

Section 1.Power to Indemnify in Actions, Suits or Proceedings Other Than Those by or in the Right of the Corporation. Subject to Section 3 of this Article VIII, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no

reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful.

Section 2.Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation. Subject to Section 3 of this Article VIII, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by him or her in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.

Section 3.Authorization of Indemnification. Any indemnification under this Article VIII (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because he or she has met the applicable standard of conduct set forth in Section 1 or Section 2 of this Article VIII, as the case may be. Such determination shall be made (1) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (2) if there are no such directors, or if such directors so direct, by

independent legal counsel in a written opinion, or (3) by the stockholders. To the extent, however, that a director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above or in defense of any claim, issue or matter therein, he or she shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by him or her in connection therewith, without the necessity of authorization in the specific case.

Section 4.Good Faith Defined. For purposes of any determination under Section 1 or 2 of this Article VIII, a person shall be deemed to have acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe his or her conduct was unlawful, if his or her action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to him or her by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The term “another enterprise” as used in this Section 4 shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the Corporation as a director, officer, employee or agent. The provisions of this Section 4 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Section 1 or 2 of this Article VIII, as the case may be.

Section 5.Indemnification by a Court. Notwithstanding any contrary determination in the specific case under Section 3 of this Article VIII, and notwithstanding the absence of any determination thereunder, any director or officer may apply to any court of competent jurisdiction in the State of Delaware for indemnification to the extent otherwise permissible under Sections 1 and 2 of this Article VIII. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director or officer is proper in the circumstances because he or she has met the applicable standards of conduct set forth in Section 1 or 2 of this Article VIII, as the case may be. Neither a contrary determination in the specific

case under Section 3 of this Article VIII nor the absence of any determination thereunder shall be a defense to such application or create a presumption that the director or officer seeking indemnification has not met any applicable standard of conduct. Notice of any application for indemnification pursuant to this Section 5 shall be given to the Corporation promptly upon the filing of such application. If successful, in whole or in part, the director or officer seeking indemnification shall also be entitled to be paid the expense of prosecuting such application.

Section 6.Expenses Payable in Advance. Expenses incurred by a director or officer in defending or investigating a threatened or pending action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation as authorized in this Article VIII.

Section 7.Nonexclusivity of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by or granted pursuant to this Article VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any Bylaw, agreement, contract, vote of stockholders or disinterested directors or pursuant to the direction (howsoever embodied) of any court of competent jurisdiction or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, it being the policy of the Corporation that indemnification of the persons specified in Sections 1 and 2 of this Article VIII shall be made to the fullest extent permitted by law. The provisions of this Article VIII shall not be deemed to preclude the indemnification of any person who is not specified in Section 1 or 2 of this Article VIII but whom the Corporation has the power or obligation to indemnify under the provisions of the DGCL or otherwise.

Section 8.Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against him and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would

have the power or the obligation to indemnify him or her against such liability under the provisions of this Article VIII.

Section 9.Certain Definitions. For purposes of this Article VIII, references to “the Corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors or officers, so that any person who is or was a director or officer of such constituent corporation, or is or was a director or officer of such constituent corporation serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, shall stand in the same position under the provisions of this Article VIII with respect to the resulting or surviving corporation as he or she would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Article VIII, references to “fines” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “serving at the request of the Corporation” shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he or she reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Corporation” as referred to in this Article VIII.

Section 10.Survival of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person.

Section 11.Limitation on Indemnification. Notwithstanding anything contained in this Article VIII to the contrary, except for proceedings to enforce rights to indemnification (which shall be governed by Section 5 hereof), the Corporation shall not be obligated to indemnify any director or officer in connection with a proceeding (or part thereof) initiated by

such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Corporation.

Section 12.Indemnification of Employees and Agents. The Corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Article VIII to directors and officers of the Corporation.

ARTICLE IX

AMENDMENTS

Section 1.These Bylaws may be altered, amended or repealed, in whole or in part, or new Bylaws may be adopted by the stockholders or by the Board of Directors, provided, however, that notice of such alteration, amendment, repeal or adoption of new Bylaws be contained in the notice of such meeting of stockholders or Board of Directors as the case may be. All such amendments must be approved by either the holders of two-thirds of the votes entitled to be cast by the holders of the outstanding capital stock entitled to vote thereon or by a majority of the Board of Directors then in office; provided, however, Article II, Section 2 (except for the first paragraph thereof) and Section 3; Article III, Section 1 (except for the first paragraph thereof); and this Article IX, Section 1 may be altered, amended or repealed only with approval of the holders of two-thirds of the votes entitled to be cast by the holders of the outstanding capital stock entitled to vote thereon and a majority of the Board of Directors then in office.

ARTICLE X

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

If there is a conflict between the provisions of these Bylaws and the provisions of the Certificate of Incorporation or the mandatory provisions of the DGCL, such provision or provisions of the Certificate of Incorporation and DGCL, as the case may be, will be controlling.

		saft\_Ex31-1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, George M. Murphy, Chief Executive Officer of Safety Insurance Group, Inc. certify that:

| 1. | I have reviewed this quarterly report on Form 10-Q of Safety Insurance Group, Inc.; |

| --- | --- |

| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |

| --- | --- |

| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present  in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |

| --- | --- |

| 4. | The registrant’s other certifying officer\(s\) and I are responsible for establishing and maintaining disclosure controls and procedures \(as defined in Exchange Act Rules 13a-15\(e\) and 15d-15\(e\)\) and internal control over financial reporting \(as defined in Exchange Act Rules 13a-15\(f\) and 15d-15\(f\)\)for the registrant and have: |

| --- | --- |

| a\) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |

| --- | --- |

| b\) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |

| --- | --- |

| c\) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |

| --- | --- |

| d\) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter \(the registrant’s fourth fiscal quarter in the case of an annual report\) that has materially affected, or is reasonable likely to materially affect, the registrant’s internal control over financial reporting; and |

| --- | --- |

| 5. | The registrant’s other certifying officer\(s\) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors \(or persons performing the equivalent functions\): |

| --- | --- |

| a\) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |

| --- | --- |

| b\) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |

| --- | --- |

/s/ GEORGE M. MURPHY

George M. Murphy

President, Chief Executive Officer and Director

(Principal Executive Officer)

May 8, 2020

		saft\_Ex31-2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Christopher T. Whitford, Chief Financial Officer of Safety Insurance Group, Inc. certify that:

| 1. | I have reviewed this quarterly report on Form 10-Q of Safety Insurance Group, Inc.; |

| --- | --- |

| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |

| --- | --- |

| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |

| --- | --- |

| 4. | The registrant’s other certifying officer\(s\) and I are responsible for establishing and maintaining disclosure controls and procedures \(as defined in Exchange Act Rules 13a-15\(e\) and 15d-15\(e\)\) and internal control over financial reporting \(as defined in Exchange Act Rules 13a-15\(f\) and 15d-15\(f\)\) for the registrant and have: |

| --- | --- |

| a\) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |

| --- | --- |

| b\) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |

| --- | --- |

| c\) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |

| --- | --- |

| d\) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter \(the registrant’s fourth fiscal quarter in the case of an annual report\) that has materially affected, or is reasonable likely to materially affect, the registrant’s internal control over financial reporting; and |

| --- | --- |

| 5. | The registrant’s other certifying officer\(s\) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors \(or persons performing the equivalent functions\): |

| --- | --- |

| a\) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |

| --- | --- |

| b\) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |

| --- | --- |

/s/ CHRISTOPHER T. WHITFORD

Christopher T. Whitford

Vice President, Chief Financial Officer and Secretary

(Principal Financial Officer)

May 8, 2020

		saft\_Ex32-1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with this quarterly report of Safety Insurance Group, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2020 as filed with the United States Securities and Exchange Commission on the date hereof (the “Report”), I, George M. Murphy, President, Chief Executive Officer and Director of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

| · | The Report fully complies with the requirements of Section 13\(a\) or 15\(d\) of the Securities Exchange Act of 1934; and |

| --- | --- |

| · | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods presented in the Report. |

| --- | --- |

/s/ GEORGE M. MURPHY

George M. Murphy

President, Chief Executive Officer and Director

(Principal Executive Officer)

May 8, 2020

		saft\_Ex32-2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with this quarterly report of Safety Insurance Group, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2020 as filed with the United States Securities and Exchange Commission on the date hereof (the “Report”), I, Christopher T. Whitford, Vice President, Chief Financial Officer and Secretary of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

| · | The Report fully complies with the requirements of Section 13\(a\) or 15\(d\) of the Securities Exchange Act of 1934; and |

| --- | --- |

| · | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods presented in the Report. |

| --- | --- |

/s/ CHRISTOPHER T. WHITFORD

Christopher T. Whitford

Vice President, Chief Financial Officer and Secretary

(Principal Financial Officer)

May 8, 2020