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-
K
2020
ANNUAL
REPORT
TO
OUR
SHAREHOLDERS
The key to our success:
SERVICE.
The key to our
customers’ success:
SAFETY.
We help you manage life’s storms
Safety Insurance was founded in 1979 with a belief that
we would succeed as a company if customers were given
the best possible service. As we’ve grown and expanded
our product line to include a full portfolio of property
and casualty insurance products, staying committed
to that belief has meant even more. At Safety, we do
everything possible to make it easy for our agents and
policyholders to do business with us.
Today, Safety is the third largest private passenger
automobile carrier, the second largest commercial
automobile carrier, and the third largest homeowners
carrier in Massachusetts. We support our network of
independent agents with state-of-the-art tools that
make the ease and convenience of doing business with
Safety second to none.
Together with our agents, Safety Insurance remains a
premier provider of property and casualty insurance
in Massachusetts, New Hampshire, and Maine. We’ll
continue this tradition into the future.
DEAR FELLOW SHAREHOLDERS:
The challenges and conditions brought on by COVID-19 caused significant economic
impact, including the temporary closures of many businesses, and reduced consumer
activity due to stay-at-home governmental actions. Safety Insurance Group continues
to take many actions that address the health and well-being of our employees while
serving the needs of our agents and insureds.
During the height of the pandemic, we put a hold on various fees, policy cancelations
and implemented the Safety Personal Auto Relief Credit. The Credit provided Safety
personal auto policyholders a 15% credit on their April, May and June premiums totaling
$17.7 million in returned premiums. We recognize that many of our customers continue
to face both personal and professional challenges in 2021 and our staff remains
committed to providing flexibility regarding payment terms and coverage options.
Cash Dividends Paid
Per Common Share
(Dollars)
0
2
3
$
.
0
0
3
$
.
.
0
8
2
$
Looking back at 2020, Safety Insurance Group had another financially successful year
with realized net income of $138.2 million or $9.18 of earnings per share. We again
achieved operating profitability and have successfully maintained our strong financial
position with total shareholders’ equity increasing to $884.7 million as of December 31,
2020 compared to $808.4 million as of December 31, 2019. Our operating earnings per
share, which exclude the impact of changes in unrealized gains on equity investments,
realized gains on investments, and other-than-temporary impairments, was $8.64 in
2020 compared to $5.25 in 2019.
Over the past five years, our total dividend adjusted shareholder return is 70.0%.
Our dividends paid to shareholders during the year were $3.60 per share representing
a 6% increase from the previous year. During the year ended December 31, 2020,
0
6
.
3
$
0
4
3
$
.
we purchased 551,598 of Safety Insurance Group shares, on the open market at a cost
Cash Dividends Paid
Per Common Share
(Dollars)
.
0
2
3
$
0
0
3
$
.
0
8
2
$
.
of $40 million.
Our total revenues for 2020, excluding changes in unrealized gains on equity
investments, were $835.8 million, a decrease from 2019 total revenues of $856.3 million
as a result of the Safety Personal Auto Relief Credit. Our loss and expense ratios were
52.5% and 34.6% in 2020 compared to 64.6% and 31.0% in 2019. The overall combined
ratio was 87.1% in 2020 compared to 95.6% in 2019.
Total Revenues1
(Dollars in Millions)
Cash Flows from Operations
(Dollars in Millions)
Net Income
(Dollars in Millions)
Total Assets
(Dollars in Billions)
0
6
.
3
$
.
0
4
3
$
.
2
8
9
1
8
$
0
1
.
9
3
8
$
0
8
.
2
5
8
$
0
3
.
6
5
8
$
0
8
.
5
3
8
$
0
7
.
7
2
1
$
0
5
.
2
1
1
$
0
5
.
9
0
1
$
2
8
.
8
9
$
4
0
.
2
8
$
0
2
.
8
3
1
$
2
0
.
2
$
5
0
.
2
$
1
8
.
1
$
6
8
.
1
$
6
7
.
1
$
0
6
.
9
9
$
0
2
.
3
8
$
9
5
.
4
6
$
9
3
.
2
6
$
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
Total Revenues1
(Dollars in Millions)
Cash Flows from Operations
(Dollars in Millions)
Net Income
(Dollars in Millions)
Total Assets
(Dollars in Billions)
.
2
8
9
1
8
$
.
0
1
9
3
8
$
.
0
8
2
5
8
$
.
0
3
6
5
8
$
0
8
.
5
3
8
$
0
7
.
7
2
1
$
0
5
.
2
1
1
$
0
5
.
9
0
1
$
.
2
8
8
9
$
4
0
.
2
8
$
0
2
.
8
3
1
$
2
0
.
2
$
5
0
.
2
$
1
8
.
1
$
6
8
.
1
$
6
7
.
1
$
0
6
.
9
9
$
0
2
.
3
8
$
9
5
.
4
6
$
9
3
.
2
6
$
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
To achieve our goal of increasing shareholders’ value, our long-standing strategy is to
maintain and develop strong independent agent relationships. In contrast to some
of our competitors, Safety distributes its products exclusively through independent
agents. We continue to work with our extensive network of agents throughout
Massachusetts, New Hampshire and Maine. We provide them with a full suite of
insurance products and information technology services, which enables them to better
serve their customers and more easily transact business with us.
1. Excludes change in unrealized gains on
equity investments
1) 2018 and 2019 exclude the change in unrealized
gains/losses on equity investments
Safety Insurance Annual Report 2020 1
Our strategy of providing agents with value and unparalleled service has enabled
Safety to establish strong relationships with agency partners and to capture a larger
share of the total business written by each agent. We position ourselves as the
preferred insurance carrier for those agents and are ranked first or second in over 70%
of their agencies based on direct written premium. We have translated our competitive
advantage and extensive knowledge of
the market to become the second largest
To achieve our goal of increasing
commercial automobile carrier, the third
largest private passenger automobile
carrier and the third largest homeowners
shareholders’ value, our long-
standing strategy is to maintain
carrier in Massachusetts.
and develop strong independent
In the rapidly changing area of insurance
Net Income
(Dollars in Millions)
technology, we are focused on systems
Total Assets
(Dollars in Billions)
agent relationships.
modernization. Our new billing system became fully operational in 2020 as did the first
phase of our modernized claims system. The remaining areas of the claim system will
.
.
.
come on-line later this year. We also have an in-house Innovation Lab whose purpose
0
2
8
3
1
$
2
0
2
$
5
0
2
$
1
8
1
$
.
6
8
1
$
.
6
7
1
$
.
is to foster a culture of innovative thinking, monitor the InsurTech landscape and
provide Safety and our independent agents with the tools and processes necessary to
continuously improve the customer experiences and remain competitive in both the
.
0
6
9
9
$
.
0
2
3
8
$
current and future insurance marketplace.
.
9
5
4
6
$
.
9
3
2
6
$
During 2020, the Innovation Lab continued to innovate through the use of telematics,
robotic processing automation, proof of concept programs around various underwriting
2016
2017
risks, and a new electronic appraisals program using Smartphone technology that
2016
2017
2018
2019
2020
2019
2020
2018
Cash Dividends Paid
Per Common Share
(Dollars)
0
2
.
3
$
0
0
.
3
$
0
8
.
2
$
0
6
.
3
$
0
4
.
3
$
2
8
.
9
1
8
$
0
1
.
9
3
8
$
0
8
.
2
5
8
$
0
3
.
6
5
8
$
0
8
.
5
3
8
$
Total Revenues1
(Dollars in Millions)
Cash Flows from Operations
(Dollars in Millions)
.
0
7
7
2
1
$
.
0
5
2
1
1
$
0
5
.
9
0
1
$
.
2
8
8
9
$
.
4
0
2
8
$
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
Total Revenues1
(Dollars in Millions)
Cash Flows from Operations
(Dollars in Millions)
Net Income
(Dollars in Millions)
Total Assets
distancing environment.
(Dollars in Billions)
Our investment objective continues to focus on maximizing total returns while
guides a consumer through a remote, touchless appraisal process that not only
speeds the claims settlement process but proved very timely during the current social
Cash Dividends Paid
Per Common Share
(Dollars)
0
2
.
3
$
0
0
.
3
$
0
8
.
2
$
0
6
.
3
$
0
4
.
3
$
2
8
.
9
1
8
$
0
1
.
9
3
8
$
0
8
.
2
5
8
$
0
3
.
6
5
8
$
0
8
.
5
3
8
$
0
7
.
7
2
1
$
0
5
.
2
1
1
$
0
5
.
9
0
1
$
2
8
.
8
9
$
4
0
.
2
8
$
0
2
.
8
3
1
$
.
0
6
9
9
$
.
0
2
3
8
$
.
9
5
4
6
$
.
9
3
2
6
$
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
investing conservatively. Net effective annual yield on our investment portfolio was
2.9% for the year ended December 31, 2020. Our duration on fixed maturities was
2
0
2
$
.
5
0
.
2
$
1
8
1
$
.
6
8
1
$
.
6
7
1
$
.
3.2 years at December 31, 2020. We additionally generated an additional $6.9 million on
our partnership investments. We continue to believe that our current portfolio position
and strong underlying operating cash flow provides sufficient liquidity to meet our
needs. As of December 31, 2020, Safety held $53.8 million in cash and cash equivalents.
Our insurance subsidiaries ‘‘A’’ (Excellent) rating was reaffirmed by A.M. Best on
May 5, 2020. In reaffirming the rating, A.M. Best recognized our solid risk-adjusted
capitalization, historically strong operating income, favorable loss reserve development,
2016
2019
2018
2017
2020
and market position as a leading property and casualty insurance writer in the New
England region. A.M. Best also noted our low investment leverage and disciplined
underwriting approach as important strengths.
2 Safety Insurance Annual Report 2020
Cash Dividends Paid
Per Common Share
(Dollars)
Total Revenues1
(Dollars in Millions)
0
6
.
3
$
0
4
.
3
$
2
8
.
9
1
8
$
.
0
1
9
3
8
$
.
0
8
2
5
8
$
.
0
3
6
5
8
$
0
2
.
3
$
0
0
.
3
$
0
8
.
2
$
2016
2017
2018
2019
2020
2016
2017
2018
2019
Our commitment to environmental, social and governance (“ESG”) causes are
incorporated into our corporate culture. For example, we conduct most of our operations
in a building that was remodeled in 2018 to update lighting, heating, ventilation and
air conditioning systems with state-of-the-art and environmentally focused technologies.
In addition, prior to the COVID-19 Pandemic approximately half of our employees took
In the rapidly
changing area of
insurance technology,
we are focused on
systems modernization.
Cash Flows from Operations
(Dollars in Millions)
part in a work-from-home program that helps
contribute to a flexible work-life balance and
allows the company to minimize the footprint
required at our home office. This additionally
limits our workforce’s commute which benefits
the environment. During the Pandemic, we were
able to place almost all of our employees at home.
We strive for a workplace where all employees
Net Income
(Dollars in Millions)
are treated with dignity and respect, and individual differences are valued, all with the
0
8
.
5
3
8
$
goal of securing the trust and satisfaction of our employees. The Company is committed
.
to a policy of inclusiveness and actively seeks out highly qualified candidates with diverse
gender, race, color, religion, ethnicity, age, marital status, handicap, sexual orientation,
gender identity or expression, and backgrounds. We foster this culture through our
robust learning and development program and our competitive compensation and
.
0
6
9
9
$
.
0
2
3
8
$
.
2
8
8
9
$
.
4
0
2
8
$
.
0
7
7
2
1
$
.
0
5
2
1
1
$
0
5
.
9
0
1
$
0
2
8
3
1
$
health and benefit programs. Furthermore, we incorporate ESG factors into our
.
9
5
4
6
$
.
9
3
2
6
$
investment selection and measure our exposure to ESG risks at both the individual
asset class and total portfolio levels.
2020
Our employees give both their time and their financial resources to charities of all
2019
2016
2020
2016
2019
2017
2017
2018
2018
2020
types, and the company promotes corporate citizenship through charitable donations
and company-sponsored volunteer activities. Safety is committed to making a positive
impact on the communities where our employees live and work through our matching
gift program, corporate giving and employee volunteerism. The Safety Insurance
Charitable Foundation specifically provides financial support for a wide array of charities
in areas such as community service, education, job training, homelessness, arts/culture,
food banks, youth programs, healthcare, medical research and disaster relief.
With the support of an experienced, knowledgeable and dedicated senior management
team, we continue to achieve operational and financial excellence. The ongoing
commitment and support of our employees, allows us to continually provide the best
service possible to our independent agent partners and policyholders. This has resulted
in a history of strong returns and enduring value for our shareholders. We appreciate
your long-term participation as a shareholder of Safety Insurance Group.
Sincerely,
George M. Murphy
President and Chief Executive Officer
Total Assets
(Dollars in Billions)
2
0
2
$
.
5
0
.
2
$
1
8
1
$
.
6
8
1
$
.
6
7
1
$
.
2016
2017
2018
2019
2020
Safety Insurance Annual Report 2020 3
AUTO
Net Earned Premiums*
(Dollars in Thousands)
,
1
2
6
9
4
5
$
,
5
0
2
8
5
5
$
,
6
9
4
9
5
5
$
,
7
7
4
2
6
5
$
,
7
8
0
2
4
5
$
2016
2017
2018
2019
2020
* Inclusive of $17.7M Safety Personal Auto Relief Credit
4 Safety Insurance Annual Report 2020
Private passenger automobile insurance is our
Net Earned Premiums
(Dollars in Thousands)
primary product representing 54.9% of our
direct written premiums. In 2020, the Company
instituted the Safety Personal Auto Relief Credit,
which provided a 15% three-month credit to our
,
5
3
7
4
8
1
$
,
6
2
8
8
8
1
$
,
4
7
6
1
9
1
$
policyholders, representing $17.7 million. We also
,
9
5
1
9
7
1
$
,
1
5
9
9
6
1
$
Net Earned Premiums
(Dollars in Thousands)
8
8
1
6
3
$
,
6
5
0
7
3
$
,
6
5
3
,
7
3
$
4
7
4
,
7
3
$
7
1
3
,
7
3
$
offer insurance for commercial vehicles used for
business purposes, insuring individual vehicles as
well as commercial fleets, which represented 14.9%
of our direct written premium in 2020. We are the
third largest private passenger automobile carrier
and the second largest commercial automobile
2019
carrier in Massachusetts, capturing approximately
2017
2020
2018
2016
8.4% and 12.8% of the respective markets.
2016
2017
2018
2019
2020
HOME
Net Earned Premiums*
(Dollars in Thousands)
Net Earned Premiums
(Dollars in Thousands)
1
2
6
,
9
4
5
$
5
0
2
,
8
5
5
$
6
9
4
,
9
5
5
$
7
7
4
,
2
6
5
$
7
8
0
,
2
4
5
$
,
5
3
7
4
8
1
$
,
6
2
8
8
8
1
$
,
4
7
6
1
9
1
$
,
9
5
1
9
7
1
$
,
1
5
9
9
6
1
$
We write policies on homes, condominiums,
Net Earned Premiums
(Dollars in Thousands)
and apartments and offer a broad selection
of coverage forms for qualified policyholders.
Homeowners’ business represents 25.0% of our
8
8
1
6
3
$
,
6
5
0
7
3
$
,
6
5
3
7
3
$
,
,
4
7
4
7
3
$
,
7
1
3
7
3
$
total direct written premium.
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
* Inclusive of $17.7M Safety Personal Auto Relief Credit
Safety Insurance Annual Report 2020 5
COMMERCIAL PROPERTY
PRODUCTS
Net Earned Premiums*
(Dollars in Thousands)
Net Earned Premiums
(Dollars in Thousands)
Net Earned Premiums
(Dollars in Thousands)
1
2
6
,
9
4
5
$
5
0
2
,
8
5
5
$
6
9
4
,
9
5
5
$
7
7
4
,
2
6
5
$
7
8
0
,
2
4
5
$
5
3
7
,
4
8
1
$
6
2
8
,
8
8
1
$
4
7
6
,
1
9
1
$
9
5
1
,
9
7
1
$
1
5
9
,
9
6
1
$
8
8
1
6
3
$
,
6
5
0
7
3
$
,
6
5
3
7
3
$
,
,
4
7
4
7
3
$
7
1
3
7
3
$
,
We offer business owner policies providing
liability and property coverage to small and
medium-sized commercial accounts. For larger
commercial accounts, or clients that require
more specialized or tailored coverages, we offer
a commercial package policy program that covers
a more extensive range of business enterprises.
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
* Inclusive of $17.7M Safety Personal Auto Relief Credit
6 Safety Insurance Annual Report 2020
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(cid:1409)(cid:3)
(cid:1407)(cid:3)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2020
Or
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
(State or other jurisdiction of incorporation or organization)
13-4181699
(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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Shares, $0.01 par value per share
SAFT
The Nasdaq Stock Market, LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:1409) No (cid:1407)(cid:3)
Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 of Section 15(d) of the Act. Yes (cid:1407) No (cid:1409)(cid:3)
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 (cid:1409) No (cid:1407)(cid:3)
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 (cid:1409) No (cid:1407)(cid:3)
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 definitions 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 (cid:1409)
Non-accelerated filer
(cid:1407)
Accelerated filer
(cid:1407)
Smaller reporting company (cid:1407)
Emerging growth company (cid:1407)
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. (cid:1407)
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. (cid:303)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:302) No (cid:303)(cid:3)
The aggregate market value of the registrant’s voting and non-voting common equity (based on the closing sales price on NASDAQ) held by
non-affiliates of the registrant as of June 30, 2020, was approximately $1,096,353,415.
As of February 10, 2021 there were 14,893,698 Common Shares with a par value of $0.01 per share outstanding.
Portions of the registrant’s definitive proxy statement for its Annual Meeting of Shareholders to be held on May 19, 2021, which Safety Insurance
Group, Inc. (the “Company”, “we”, “our”, “us”) intends to file within 120 days after its December 31, 2020 year-end, are incorporated by reference into
Part II and Part III hereof.
Documents Incorporated by Reference
SAFETY INSURANCE GROUP, INC.
Table of Contents
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
Page
1
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31
31
31
32
33
35
37
58
59
98
98
99
100
100
100
100
100
100
112
113
PART I.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV.
Item 15.
Item 16
SIGNATURES
In this Form 10-K, all dollar amounts are presented in thousands, except average premium, average claim and
per claim data, share, and per share data.
ITEM 1. BUSINESS
PART I.
General
We are a leading provider of private passenger automobile, commercial automobile, and homeowners insurance
in Massachusetts. In addition to these coverages, we offer a portfolio of other insurance products, including dwelling
fire, umbrella and business owner policies. Operating exclusively in Massachusetts, New Hampshire and Maine through
our insurance company subsidiaries, Safety Insurance Company ("Safety Insurance"), Safety Indemnity Insurance
Company ("Safety Indemnity"), and Safety Property and Casualty Insurance Company ("Safety P&C") (together referred
to as the "Insurance Subsidiaries"), we have established strong relationships with independent insurance agents, who
numbered 871 in 1,095 locations throughout these three states during 2020. We have used these relationships and, in
particular, our extensive knowledge of the Massachusetts market to become the third largest private passenger
automobile carrier and the second largest commercial automobile carrier in Massachusetts, capturing an approximate
8.4% and 12.8% share, respectively, of the Massachusetts private passenger and commercial automobile markets in 2020
according to statistics compiled by Commonwealth Automobile Reinsurers ("CAR"). We also are the third largest
homeowners insurance carrier in Massachusetts with a 7.0% share of that market. We were ranked the 53rd largest
automobile writer in the country according to S&P Global Market Intelligence, based on 2019 direct written premiums.
We were incorporated under the laws of Delaware in 2001, but through our predecessors, we have underwritten
insurance in Massachusetts since 1979.
Our Insurance Subsidiaries began writing insurance in New Hampshire during 2008 and Maine in 2016. The
table below shows the amount of direct written premiums written in each state during the years ended December 31,
2020, 2019, and 2018.
Direct Written Premiums
Massachusetts
New Hampshire
Maine
Total
Years Ended December 31,
2020
2019
2018
764,479
32,334
1,899
798,712
$
$
819,534
31,676
1,194
852,404
$
$
813,857
29,159
659
843,675
$
$
In November of 2020, we formed a fourth insurance subsidiary, Safety Northeast Insurance Company (“Safety
Northeast”, which became licensed to write insurance products in Massachusetts in January of 2021.
Website Access to Information
The Internet address for our website is www.SafetyInsurance.com. All of our press releases and United States
Securities and Exchange Commission ("SEC") reports are available for viewing or download at our website. These
documents are made available as soon as reasonably practicable after each press release is made and SEC report is filed
with, or furnished to, the SEC. Copies of any current public information about our company is available without charge
upon written, telephone, faxed or e-mailed request to the Office of Investor Relations, Safety Insurance Group, Inc., 20
Custom House Street, Boston, MA 02110, Tel: 877-951-2522, Fax: 617-603-4837, or e-mail:
InvestorRelations@SafetyInsurance.com. The materials on our website are not part of this report on Form 10-K nor are
they incorporated by reference into this report and the URL above is intended to be an inactive textual reference only.
The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and other
information regarding issuers that file electronically with the SEC.
1
Our Competitive Strengths
We Have Strong Relationships with Independent Agents. In 2020, independent agents accounted for
approximately 58.1% of the Massachusetts automobile insurance market measured by direct written premiums as
compared to approximately 30.8% nationwide, based on data made available by Independent Insurance Agents and
Brokers of America, Inc. and Commonwealth Automobile Reinsurers. For that reason, our strategy is centered around,
and we sell exclusively through, a network of independent agents. In order to support our independent agents and
enhance our relationships with them, we:
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provide our agents with a portfolio of property and casualty insurance products at competitive prices to
help them effectively address the insurance needs of their clients;
provide our agents with a variety of technological resources which enable us to deliver superior service and
support to them; and
offer our agents competitive commission schedules and profit sharing programs.
Through these measures, we strive to become the preferred provider of the independent agents in our agency
network and capture a growing share of the total insurance business written by these agents in Massachusetts, New
Hampshire and Maine. We must compete with other insurance carriers for the business of independent agents.
We Have a History of Profitable Operations. In 39 out of 40 years since our inception in 1979, we have been
profitable. We have achieved our profitability, among other things, by:
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operating as the third largest private passenger auto premium insurance carrier, the second largest
commercial auto insurance carrier, and third largest homeowner insurance carrier in Massachusetts. We
have maintained direct written premiums in a competitive market over the last five years seeing total direct
written premium of $798,712 in 2020 compared to $811,559 in 2016. During the year ended December 31,
2020, as a result of the COVID-19 pandemic, the Company instituted the Safety Personal Auto Relief
Credit, a 15% policyholder credit, representing $17,711 in total premium which was applied to personal
auto policies for the months of April, May and June which impacted the 2020 direct written premiums by
that amount. Overall, outside of this relief credit, our direct written premium has increased over this five
year period.
(cid:120) maintaining a combined ratio that is typically below industry averages (refer to Insurance Ratios under
Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations for a
discussion on insurance ratios);
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taking advantage of the institutional knowledge our management has amassed during its long tenure in the
industry;
introducing new lines and forms of insurance products;
investing in technology to simplify internal processes and enhance our relationships with our agents; and
(cid:120) maintaining a high-quality investment portfolio.
We Have Developed Advanced Technology for Our Business. We have dedicated significant human and
financial resources to the development of advanced information systems. Our technology efforts have benefited us in
two distinct ways. First, we continue to develop technology that empowers our independent agent customers by making
it easier for them to transact business with their clients and with the Insurance Subsidiaries. In our largest business line,
private passenger automobile insurance, our agents submit approximately 99.0% of all applications for new policies or
endorsements for existing policies to us electronically through our proprietary information portal, the Agents Virtual
Community ("AVC"). Our agents also can submit commercial automobile and homeowners insurance policies
electronically over the AVC. Second, our investment in technology has allowed us to re-engineer internal back office
processes to provide more efficient service at a lower cost.
2
We Have an Experienced, Committed and Knowledgeable Management Team. Our senior management team
has an average of over 24 years of experience with Safety and a demonstrated ability to operate successfully within the
property and casualty market.
Our Strategy
To achieve our goal of increasing shareholder value, our strategy is to maintain and develop strong independent
agent relationships by providing our agents with a full package of insurance products and information technology
services. We believe this strategy will allow us to:
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further penetrate the Massachusetts, New Hampshire and Maine markets in all lines of business;
implement rates, forms and billing options that allow us to cross-sell private passenger automobile,
homeowners, dwelling fire, and personal umbrella policies in the personal lines market and commercial
automobile, business owner policies, commercial property package and commercial umbrella policies in
the commercial lines market in order to capture a larger share of the total Massachusetts, New Hampshire
and Maine property and casualty insurance business written by each of our independent agents; and
continue to expand our technology to enable independent agents to more easily serve their customers and
conduct business with us, thereby strengthening their relationships with us.
Property and Casualty Insurance Market
Introduction. We are licensed by the respective state insurance departments to transact property and casualty
insurance in Massachusetts, New Hampshire, and Maine. All of our business is regulated by these departments, with the
most extensive oversight from our domestic regulator, the Massachusetts Division of Insurance.
Products
Historically, we have focused on underwriting private passenger automobile insurance, which is written through
our subsidiary, Safety Insurance. In 1989, we formed Safety Indemnity to offer commercial automobile insurance at
preferred rates. Since 1997, we have expanded the breadth of our product line in order for agents to address a greater
portion of their clients' insurance needs by selling multiple products. Homeowners, business owner, personal umbrella,
dwelling fire and commercial umbrella insurance policies are written by Safety Insurance at standard rates and written by
Safety Indemnity at preferred rates. In December 2006, we formed Safety P&C to offer homeowners and commercial
automobile insurance at ultra preferred rates. In November 2020, we formed Safety Northeast to offer a fourth
homeowners rate level for risks that satisfy stricter underwriting guidelines. We expect to begin writing policies through
Safety Northeast in 2021.
The table below shows our premiums in each of these product lines for the periods indicated and the portions of
our total premiums each product line represented.
Direct Written Premiums
Private passenger automobile
Commercial automobile
Homeowners
Business owners
Personal umbrella
Dwelling fire
Commercial umbrella
Total
2020
438,824
118,773
199,482
22,317
8,087
10,148
1,081
798,712
$
$
Years Ended December 31,
2019
54.9 % $
14.9
25.0
2.8
1.0
1.3
0.1
100.0 % $
466,697
147,177
196,764
22,241
8,316
10,109
1,100
852,404
54.8 % $
17.3
23.0
2.6
1.0
1.2
0.1
100.0 % $
2018
469,340
139,628
193,482
22,182
8,132
9,829
1,082
843,675
55.6 %
16.6
22.9
2.6
1.0
1.2
0.1
100.0 %
3
Our product lines are as follows:
Private Passenger Automobile (54.9% of 2020 direct written premiums). Private passenger automobile
insurance is our primary product. These policies provide coverage for bodily injury and property damage to others, no-
fault personal injury coverage for the insured/insured's car occupants, and physical damage coverage for an insured's
own vehicle for collision or other perils.
Commercial Automobile (14.9% of 2020 direct written premiums). Commercial automobile policies provide
coverage for bodily injury and property damage to others, no-fault personal injury coverage, and physical damage
coverage for an insured's own vehicle for collision or other perils resulting from the ownership or use of commercial
vehicles in a business. We offer insurance for commercial vehicles used for business purposes such as private
passenger-type vehicles, trucks, tractors and trailers (excluding long-haul trucking), and insure individual vehicles as
well as commercial fleets.
Homeowners (25.0% of 2020 direct written premiums). We offer a broad selection of coverage forms for
qualified policyholders. Homeowners policies provide coverage for losses to a dwelling and its contents from numerous
perils, and coverage for liability to others arising from ownership or occupancy. We write policies on homes,
condominiums, and apartments.
Business Owner Policies (2.8% of 2020 direct written premiums). We serve eligible small and medium sized
commercial accounts with a program that covers apartments and residential condominiums; mercantile establishments,
including limited cooking restaurants; offices, including office condominiums; processing and services businesses;
special trade contractors; and wholesaling businesses. Business owner policies provide liability and property coverage
for many perils, including business interruption from a covered loss. Equipment breakdown coverage is automatically
included, and a wide range of additional coverage is available to qualified customers. We write policies for business
owners at standard rates with qualifying risks eligible for preferred lower rates.
Personal Umbrella (1.0% of 2020 direct written premiums). We offer personal excess liability coverage over
and above the limits of individual automobile, watercraft, and homeowner's insurance policies to clients. We write
policies at standard rates with limits of $1,000 to $5,000.
Dwelling Fire (1.3% of 2020 direct written premiums). We underwrite dwelling fire insurance, which is a
limited form of a homeowner's policy for non-owner occupied residences. We write all forms of dwelling fire coverage
at standard rates with qualifying risks eligible for preferred lower rates.
Commercial Umbrella (0.1% of 2020 direct written premiums). We offer an excess liability product to clients
for whom we underwrite both commercial automobile and business owner policies. The program is directed at
commercial automobile risks with private passenger-type automobiles or light and medium trucks. We write commercial
umbrella policies at standard rates with limits ranging from $1,000 to $5,000.
Inland Marine (Included in our Homeowners direct written premiums). We offer inland marine coverage as an
endorsement for all homeowners and business owner policies, and as part of our commercial package policy. Inland
marine provides additional coverage for jewelry, fine arts and other items that a homeowners or business owner policy
would limit or not cover. Scheduled items valued at more than $5 must meet our underwriting guidelines and be
appraised.
Watercraft (Included in our Homeowners direct written premiums). We offer watercraft coverage for small and
medium sized pleasure craft with maximum lengths of 32 feet, valued at less than $75 and maximum speed of 39 knots.
We write this coverage as an endorsement to our homeowner's policies.
4
The insurance industry can also be impacted by terrorism, and we have filed and received approval for a
number of terrorism endorsements, which limit our liability and property exposure according to the Terrorism Risk
Insurance Act of 2002, the Terrorism Risk Insurance Extension Act of 2005, the Terrorism Risk Insurance Program
Reauthorization Act of 2007, the Terrorism Risk Insurance Program Reauthorization of 2015 and the Terrorism Risk
Insurance Program Reauthorization Act of 2019. See "Reinsurance," discussed below.
Distribution
We distribute our products exclusively through independent agents, unlike some of our competitors who use
multiple distribution channels. We believe this gives us a competitive advantage with the agents. With the exception of
personal automobile business assigned to us by the Massachusetts Automobile Insurance Plan (“MAIP”) or written
through CAR’s commercial automobile Servicing Carrier program, we do not accept business from insurance brokers.
Our voluntary agents have authority pursuant to our voluntary agency agreement to bind our Insurance Subsidiaries for
any coverage that is within the scope of their authority. We reserve the ability to cancel any coverage bound, in
accordance with applicable law. In total, our independent agents numbered 871 and had 1,095 offices (some agencies
have more than one office) and approximately 9,476 customer service representatives during 2020.
Voluntary Agents. In 2020, we obtained approximately 96.2% of our direct written premiums for automobile
insurance and 100% of our direct written premiums for all of our other lines of business through our voluntary agents.
As of December 31, 2020, we had agreements with 740 voluntary agents. Our voluntary agents are located in all regions
of Massachusetts, New Hampshire and Maine.
We look for agents with profitable portfolios of business. To become a voluntary agent for our Company, we
generally require that an agency: (i) have been in business for at least five years; (ii) have exhibited a three year private
passenger average ratio of losses, excluding loss adjustment expenses, to net earned premiums ("pure loss ratio") of
65.0% or less on the portion of the agent's portfolio that we would underwrite; (iii) make a commitment for us to
underwrite at least 300 policies from the agency during the first twelve months after entering an agreement with us; and
(iv) offer multiple product lines. Every year, we review the prior year performance of our agents. If an agent fails to
meet our profitability standards, we try to work with the agent to improve the profitability of the business it places with
us. We generally terminate contracts each year with a few agencies, which, despite our efforts, have been consistently
unable to meet our standards. Although independent agents usually represent several unrelated insurers, our goal is to be
one of the top two insurance companies represented in each of our agencies, as measured by direct written premiums.
No individual agency generated more than 8.8% of our direct written premiums in 2020.
Massachusetts law guarantees that CAR provides motor vehicle insurance coverage to all eligible risks. Under
the MAIP, personal automobile policies are assigned to us for three years, unless the policyholder is offered a voluntary
policy by another insurer. All Massachusetts agents are authorized to submit eligible business to the MAIP for random
assignment to a carrier such as Safety Insurance. We are allocated all private passenger residual market business through
the MAIP.
CAR runs a reinsurance pool for ceded commercial automobile policies through the Commercial Automobile
Program (the “Commercial Automobile Program”). CAR has appointed Safety and three other servicing carriers to process
ceded commercial automobile insurance. Safety was reappointed for this program on January 1, 2017 for an additional
five-year term. Approximately $174,400 of ceded premium is spread equitably among the four servicing carriers. Subject
to the review of the Massachusetts Commissioner of Insurance (“the Commissioner”), CAR sets the premium rates for
commercial automobile policies reinsured through CAR and this reinsurance pool can generate an underwriting result that
is a profit or deficit based upon CAR's rate level. This underwriting result is allocated among every Massachusetts
commercial automobile insurance company, including us, based on a company's commercial automobile voluntary market
share.
5
CAR also runs a reinsurance pool for Taxi, Limousine and Car Service risks (the "Taxi/Limo Program"). CAR
reappointed Safety as one of the two servicing carriers for this program on January 1, 2017 for an additional five-year
term. Approximately $5,520 of ceded premium was spread equitably between the two servicing carriers.
We are assigned independent agents by CAR who can submit commercial business to us in the Commercial
Automobile Program and the Taxi/Limo Program, and we classify those agents as Exclusive Representative Producers
(“ERPs”).
The table below shows our direct written exposures in each of our product lines for the periods indicated and
the change in exposures for each product line.
Line of Business
Private passenger automobile:
Voluntary agents
MAIP
Total private passenger automobile
Commercial automobile:
Voluntary agents
ERP
Total commercial automobile
Other:
Homeowners
Business owners
Personal umbrella
Dwelling fire
Commercial umbrella
Total other
Total
Total voluntary agents
2020
Years Ended December 31,
2019
2018
Exposures
Change
Exposures
Change
Exposures
Change
408,873
3,298
412,171
63,828
3,802
67,630
157,611
8,735
22,124
6,454
652
195,576
675,377
668,277
(2.4)%
(42.9)
(2.9)
(4.8)
(50.8)
(9.6)
(0.8)
(1.9)
(2.2)
(2.7)
(4.7)
(1.1)
(3.1)
(2.3)
418,894
5,777
424,671
67,074
7,725
74,799
158,848
8,903
22,620
6,632
684
197,687
697,157
683,655
(1.6)%
(29.1)
(2.1)
5.4
(31.1)
(0.1)
(0.3)
(2.2)
(1.4)
(2.9)
1.5
(0.6)
(1.5)
(0.7)
425,783
8,150
433,933
63,652
11,214
74,866
159,352
9,100
22,934
6,833
674
198,893
707,692
688,328
(2.0)%
(17.6)
(2.3)
2.0
(9.3)
0.1
(0.6)
(4.2)
(1.3)
(4.0)
(0.4)
(1.0)
(1.7)
(1.3)
In 2020, the COVID-19 pandemic had an impact on our voluntary exposure counts as some of our independent
agency partners were forced to close during the year, affecting normal new business production. In addition, the 2020
commercial automobile exposures decreased when compared to the prior year as a result of a redistribution of agents
among Servicing Carriers in the CAR Commercial Auto Program as well as changes made by CAR to eligibility
requirements which impacted the number of policies that we handle as a Servicing Carrier.
In 2020, 66.1% of the private passenger automobile exposures we insure had an other than private passenger
policy with us, compared to 64.2% and 61.7% in 2019 and 2018, respectively. In addition, 82.8% of our homeowners’
policyholders had a matching automobile policy with us in 2020 compared to 82.5% in 2019 and 81.9% in 2018.
Marketing
We view the independent agent as our customer and business partner. As a result, a component of our
marketing efforts focuses on developing interdependent relationships with leading Massachusetts, New Hampshire and
Maine agents that write profitable business and positioning ourselves as the preferred insurance carrier of those agents,
thereby receiving a larger portion of each agent's aggregate business. Our principal marketing strategies to agents are:
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to offer a range of products, which we believe enables our agents to meet the insurance needs of their
clients;
to price our products competitively, including offering discounts when and where appropriate for safer
drivers for our personal automobile products, loss-free credits for our homeowner products and also
offering account discounts for policyholders that have more than one policy with us;
6
(cid:120)
(cid:120)
(cid:120)
to design, price and market our products to our agents for their customers to place all their insurance with
us;
to offer agents competitive commissions, with incentives for placing their more profitable business with us;
and
to provide a level of support and service that enhances the agent's ability to do business with its clients and
with us.
We have a comprehensive branding campaign using a variety of radio, television, digital and print
advertisements.
Commission Schedule and Profit Sharing Plan. We have several programs designed to attract profitable new
business from agents by paying them competitive commissions. We recognize our top performing agents by making
them members of either our Chairman's Elite, Chairman's, President's, Executive's or Preferred Agent's Club. In 2020,
members of these Clubs received a commission of up to 18.0% of premiums for each new private passenger auto policy,
up to 22.0% of premiums for each new homeowner policy, up to 20.0% for each new commercial auto policy and up to
20.0% for each new commercial property policy.
Further, we have a competitive agency incentive commission program under which we pay agents up to 7.5% of
premiums based on the loss ratio on their business.
Service and Support. We believe that the level and quality of service and support we provide helps differentiate
us from other insurers. We have made a significant investment in information technology designed to facilitate our
agents' business. Our AVC website helps agents manage their work efficiently. We provide a substantial amount of
information online that agents need to serve their customers, such as information about the status of new policies, bill
payments and claims. Providing this type of content reduces the number of customer calls we receive and empowers the
agent's customer service representatives by enabling them to respond to customers' inquiries while the customer is on the
telephone. Finally, we believe that the knowledge and experience of our employees enhances the quality of support we
provide.
Underwriting
Our underwriting department is responsible for a number of key decisions affecting the profitability of our
business, including:
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pricing of our private passenger automobile, commercial automobile, homeowners, dwelling fire, personal
umbrella, business owner, commercial umbrella and commercial package products;
developing new products, coverages, forms and discounts, as well as expansion into new states;
determining underwriting guidelines for all our products; and
evaluating whether to accept transfers of a portion of an existing or potential new agent's portfolio from
another insurer.
Pricing. Subject to the applicable state insurance department’s review, we set rates for all of our products using
our own loss experience, industry loss cost data, residual market deficits, catastrophe modeling and prices charged by our
competitors. We have four pricing segments for most products, utilizing Safety Insurance for standard rates, Safety
Indemnity for preferred rates and, Safety P&C for ultra preferred rates. We expect to begin offering a fourth
homeowners rate level for risks that satisfy stricter underwriting guidelines through Safety Northeast in 2021.
Massachusetts Residual Automobile Insurance Markets. CAR establishes the rates for personal automobile
policies assigned to carriers through the MAIP. In accordance with Massachusetts law, insurers may only charge MAIP
policyholders the lower of the MAIP rate or the company's competitive voluntary market rate. CAR also sets rates for
7
commercial automobile policies, including taxi/limousine/car service policies, reinsured through the CAR residual
market pool. All commercial automobile business and taxi/limousine/car service business that is not written in the
voluntary market in Massachusetts is apportioned to one of these servicing carriers which handles that business on behalf
of CAR. Every Massachusetts commercial automobile insurer must bear a portion of the losses of the total commercial
reinsurance pool that is serviced by the approved servicing carriers. We are one of four servicing carriers in CAR’s
Commercial Automobile Program and one of two servicing carriers in CAR’s Taxi/Limo Program.
Bulk Policy Transfers and New Voluntary Agents. From time to time, we receive proposals from an existing
voluntary agent to transfer a portfolio of the agent's business from another insurer to us. Our underwriters model the
profitability of these portfolios before we accept these transfers. We generally require any new voluntary agent to
commit to transfer a portfolio to us consisting of at least 300 policies.
Policy Processing. Our underwriting department assists in processing policy applications, endorsements,
renewals and cancellations. Our proprietary software, Safety Express, provides our agents with new business and
endorsement entry, real-time policy issuance for personal lines, immediate printing of declarations pages in agents'
offices, policy downloads to most major agency management systems and data imports from Boston Software's
SinglePoint (Massachusetts) and Vertafore's PL Rater (Massachusetts, New Hampshire and Maine).
Rate Pursuit. We aggressively monitor all insurance transactions to make sure we receive the correct premium
for the risk insured. We accomplish this by verifying pricing criteria. For automobile policies, we verify proper
classification of drivers, the make, model, and age of insured vehicles, and the availability of discounts. We also verify
that operators are properly listed and classified, assignment of operators to vehicles, and vehicle garaging. In our
homeowners and dwelling fire lines, we use third party software to evaluate property characteristics and we conduct
property inspections. We have a premium audit program in our business owner program, as well as other loss control
reviews for additional commercial lines of business.
Product Management. The Product Management department is responsible for the overall review and updating
of our products. The department maintains an annual schedule where each line of business is reviewed and benchmarked
with our major competitors. Product offerings, discounts, rate levels and underwriting guidelines are reviewed and
updates are performed as required. The department also is responsible for updating producer materials such as rate and
rule manuals, and underwriting guidelines as well as promotional materials. In conjunction with the underwriting
operations area, the department works with third party vendors that assist with risk information gathering and rate pursuit
for in force policies. The department also provides product training and general marketplace education for the
organization.
Legal and Regulatory Compliance. The Legal and Regulatory Compliance department provides legal and
compliance support to all business units within the company. The department serves as the primary liaison with
regulators, government, industry trade associations and residual market mechanisms. The department also provides legal
support to all areas of the company, including general corporate matters and vendor contracting. The department
monitors legal and regulatory changes affecting the enterprise and provides guidance on how to comply with those
changes. The department additionally reviews business unit operations to identify and address compliance
vulnerabilities.
Business Intelligence. The Business Intelligence department uses Safety’s data assets to support decision-
making in areas including underwriting, pricing, claims, reserving, reinsurance and assessing catastrophe risks. Data
analytics are used to analyze and estimate exposures, loss trends and other risks, and are leveraged to improve company
business performance and customer satisfaction.
The focuses of our information technology (“IT”) efforts are:
Technology
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to support the strategic goals, objectives and business needs of the Company by aligning our IT annual
goals with those of the business assuring that IT resources are being utilized efficiently;
8
(cid:120)
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(cid:120)
(cid:120)
to constantly re-engineer internal processes to allow more efficient operations, resulting in lower operating
costs;
to continuously improve the customer experience making it easier for independent agents and policyholders
to transact business with us;
to enable agents to efficiently provide their clients with a high level of service; and
to maintain and support a secure computing environment.
We believe that our technology initiatives have increased revenue and decreased costs while at the same time
improving the customer experience of both our agents and policyholders. We are continuously investing in new
technologies including areas such as robotic process automation and a new claims system which we began using for
other than auto lines of business in 2020 and we plan to begin using for auto lines of business in 2021.
Innovation Lab. In 2018 we established an Innovation Lab. The purpose of the Innovation Lab is to foster a
culture of innovative thinking, monitor the InsureTech landscape and provide Safety and our independent agents with the
tools and processes necessary to continuously improve the customer experiences and remain competitive in both the
current and future insurance marketplace. During 2020, the Innovation Lab explored Omnichannel for Customer Service
offerings from both InsureTech and more established companies and we will look to implement a solution in 2021. The
Innovation Lab also partnered with Safety’s Product Management department to explore home sensor devices to detect
both water leakage and freeze. In late December 2020 an InsureTech was selected and Safety will be performing an
internal Home Sensor Proof of Concept program in 2021 including freeze and water detection sensors along with a
Smartphone Mobile app allowing participants to monitor the status of their sensors remotely. Finally during 2020, the
Innovation Lab partnered with the Claims department to introduce electronic appraisals program using Smartphone
technology that guides a consumer through a remote, touchless appraisal process that not only speeds the claims
settlement process but proved very timely during the current social distancing environment.
Internal Applications
Our employees access our proprietary and vendor supplied applications through our corporate intranet. Our
intranet applications streamline internal processes and improve overall operational efficiencies in areas including:
Claims. Our claims workload management application allows our claims and subrogation adjusters to better
manage the claims process. Subrogation refers to the process by which we are reimbursed by other insurers for claims
costs we incur due to the fault of their insureds. The use of this application has reduced the time it takes for us to
respond to and settle claims, which we believe helps reduce the total amount of our claims expense.
The automated adjuster assignment system categorizes our new claims by severity and assigns them to the
appropriate adjuster responsible for investigation. Once assigned, the integrated workload management tools facilitate
the work of promptly assigning appraisers, investigating liability, issuing checks and receiving subrogation receipts.
The RadicalGlass.com application allows our claims department to contain glass costs by increasing the
windshield repair to replacement ratio.
We currently operate three VIP Claims Centers which use a network of rental car centers and auto body repair
shops to provide a higher level of service to the clients of the independent insurance agents while reducing costs, such as
rental expense, through reduced cycle times.
Billing. Proprietary and vendor supplied billing systems, integrated with the systems of our print and lock-box
vendors, expedite the processing and collection of premium receipts and finance charges from agents and policyholders.
We believe the sophistication of our direct bill systems help us to limit our bad debt expense. Our bad debt expense as a
percentage of direct written premiums was 0.4% in 2020 compared to 0.2% in 2019.
9
External Applications
Our agent technology offerings are centralized within our agency portal and feature PowerDesk and Safety
Express. PowerDesk is a web-based application that allows for billing inquiry, agent payments on behalf of their
policyholders, policy inquiry and claims inquiry. Safety Express provides agents with new business and endorsement
entry, real-time policy issuance for personal lines, immediate printing of declarations pages in agents' offices, policy
downloads to most major agency management systems and data imports from Boston Software's SinglePoint
(Massachusetts) and Vertafore's PL Rater (Massachusetts, New Hampshire and Maine). In addition, we provide our
agents with commission and claims download for all lines of business, Transformation Station and Transact Now
Inquires, e-Claims online claims reporting, e-View daily transaction reports and e-Docs online electronic document file
cabinet.
We also provide electronic billing (“eBill”), online bill pay (including credit and debit cards), online
declarations pages, billing inquiry, claims inquiry, auto and homeowners claims first notice of loss, online auto insurance
cards, and bill pay reminder alerts to our agents’ policyholders through our public website, SafetyInsurance.com. We
have also updated our telephone system to provide a voice activated phone directory, automated billing inquiry and
payments, and call center screen pop-up technology.
We additionally provide policyholders mobile technology through our Safety Mobile App for iPhone and
Android devices. Safety Mobile provides consumers with access to their agent information, bill pay capabilities, the
ability to report an automobile or homeowners claim and access to their insurance card, among other features.
Claims
On casualty claims we utilize stringent claims settlement procedures, which include guidelines that establish
settlement ranges for soft tissue injuries, which constituted approximately 65% of our bodily injury claims in 2020. If
we are unable to settle these claims within our pricing guidelines, we explore other cost-effective options including
alternative dispute resolutions and/or litigation. We believe that these procedures result in providing our adjusting staff
with a uniform approach to negotiation.
We believe an important component of handling claims efficiently is prompt investigation and settlement. We
find that faster claims settlements often result in less expensive claims settlements. Our E-Claim reporting system is an
online product that reduces the time it takes for agents to notify our adjusters about claims, thereby enabling us to contact
third-party claimants and other witnesses quickly. Our insureds can report claims directly by phone, web, or mobile
application. In addition, we utilize an after-hours reporting vendor to ensure that new claims can be reported 24 hours
per day and 365 days per year.
We believe that early notification results in our adjusters conducting prompt investigations of claims and
compiling more accurate information about those claims. Our claims workload management software also assists our
adjusters in handling claims quickly.
We believe the structure of our claims department allows us to respond quickly to claimants. The department is
organized into distinct claim units that contain loss costs on injury claims. Field adjusters are located geographically for
prompt response to claims, with our litigation unit focused on managing loss costs and litigation expenses for serious
injury claims.
Additionally, we utilize a special investigation unit to investigate potential fraud in connection with claims
presented. In cases where adjusters suspect fraud in connection with a claim, we deploy this special unit to conduct
investigations. We deny payment in cases in which we have succeeded in accumulating sufficient evidence of fraud.
Our auto physical damage claims units handle physical damage claims arising in our private passenger and
commercial automobile lines. Process automation has streamlined our claims function and in combination with
established policy and procedures newly reported claims are handling in a proactive manner to ensure that coverages are
10
verified, damages are appraised and claim payments are issued in a timely and efficient manner. This ensures the highest
level of customer service to our insureds while reducing claim cycle times and mitigating claim handling expenses. We
continue to vet and implement new methods of appraisal for vehicle damage, including vehicle photo only appraisals
within the regulatory established guidelines. Once we receive this information, an automated system redirects the claim
to the appropriate internal adjuster responsible for investigating the claim to determine liability. Upon determination of
liability, the system automatically begins the process of seeking a subrogation recovery from another insurer, if liable.
We believe this process results in a shorter time period from when the claimant first contacts the agent to when the
claimant receives a claim payment, while enabling our agents to build credibility with their clients by responding to
claims in a timely and efficient manner.
Our property claims division handles physical damage claims arising in our homeowners and other than auto
insurance lines. Property Field Adjusters are located remotely across our service areas to handle larger more complex
property losses. In 2020, we implemented a new claim handling software system that enables more efficient handling of
the claim process from first notice of loss through settlement and potential subrogation. We also utilize house counsel on
subrogation recoveries to reduce collection expenses and maximize damage recoveries.
Reserves
Significant periods of time can elapse between the occurrence of an insured loss, the reporting of the loss to the
insurer and the insurer's payment of that loss. To recognize liabilities for unpaid losses, insurers establish reserves as
balance sheet liabilities representing estimates of amounts needed to pay reported and unreported losses and the expenses
associated with investigating and paying the losses, or loss adjustment expenses. Every quarter, we review and establish
our reserves. Regulations promulgated by the Commissioner require us to annually obtain a certification from either a
qualified actuary or an approved loss reserve specialist who may be one of our employees that our loss and loss
adjustment expenses reserves are reasonable.
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 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.
In accordance with industry practice, we also maintain reserves for estimated losses incurred but not yet
reported. Incurred but not yet reported reserves are determined in accordance with commonly accepted actuarial
reserving techniques on the basis of our historical information and experience. We make adjustments to incurred but not
yet reported reserves quarterly to take into account changes in the volume of business written, claims frequency and
severity, our mix of business, claims processing and other items that can be expected to affect our liability for losses and
loss adjustment expenses over time.
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, legislative enactments, judicial decisions, legal
developments in imposition of damages, and changes and trends in general economic conditions, including the effects of
inflation. 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. After taking into account all
relevant factors, management believes that our provision for unpaid losses and loss adjustment expenses at December 31,
2020 is adequate to cover the ultimate cost of losses and claims incurred as of that date.
Management determines its loss and loss adjustment expense ("LAE") reserve estimates based upon the analysis
of the Company's actuaries. Management has established a process for the Company's actuaries to follow in establishing
reasonable reserves. The process consists of meeting with our claims department, establishing ultimate incurred losses
11
by using development models accepted by the actuarial community, and reviewing the analysis with management. The
Company's estimate for loss and LAE reserves, net of the effect of ceded reinsurance, ranges from a low of $424,437 to a
high of $478,251 as of December 31, 2020. The Company's net loss and LAE reserves, based on our actuaries' best
estimate, were set at $461,270 as of December 31, 2020. The ultimate liability may be greater or less than reserves
carried at the balance sheet date. Establishment of appropriate reserves is an inherently uncertain process, and there can
be no certainty that currently established reserves 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. We do not discount any of our reserves.
The following table presents development information on changes in the reserves for losses and LAE of our
Insurance Subsidiaries for each year in the three year period ended December 31, 2020, 2019 and 2018.
Reserves for losses and LAE at beginning of year
Less receivable from reinsurers related to unpaid losses and LAE
Net reserves for losses and LAE at beginning of year
Incurred losses and LAE, related to:
Current year
Prior years
Total incurred losses and LAE
Paid losses and LAE related to:
Current year
Prior years
Total paid losses and LAE
Net reserves for losses and LAE at end of period
Plus receivable from reinsurers related to unpaid losses and LAE
Reserves for losses and LAE at end of period
2020
$
610,566
(122,372)
488,194
459,400
(54,844)
404,556
277,754
153,726
431,480
461,270
106,311
567,581
$
$
$
Year Ended
2019
$
584,719
(108,398)
476,321
551,895
(42,049)
509,846
333,377
164,596
497,973
488,194
122,372
610,566
$
2018
574,054
(83,085)
490,969
542,001
(56,488)
485,513
340,927
159,234
500,161
476,321
108,398
584,719
The following table represents the development of reserves, net of reinsurance, for calendar years 2010 through
2020. The top line of the table shows the reserves at the balance sheet date for each of the indicated years. This
represents the estimated amounts of losses and loss adjustment expenses for claims arising in all years that were unpaid
at the balance sheet date, including losses that had been incurred but not yet reported to us. The upper portion of the
table shows the cumulative amounts paid as of the end of each successive year with respect to those claims. The lower
portion of the table shows the re-estimated amount of the previously recorded reserves based on experience as of the end
of each succeeding year, including cumulative payments made since the end of the respective year. The estimate changes
as more information becomes known about the payments, frequency and severity of claims for individual years.
Favorable loss development, shown as a cumulative redundancy in the table, exists when the original reserve estimate is
greater than the re-estimated reserves at December 31, 2020.
12
Information with respect to the cumulative development of gross reserves (that is, without deduction for
reinsurance ceded) also appears at the bottom portion of the table.
Reserves for losses and
LAE originally estimated:
Cumulative amounts paid as of:
One year later
Two years later
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Ten years later
Reserves re-estimated as of:
One year later
Two years later
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Ten years later
Cumulative
(redundancy) deficiency 2019
Gross liability-end of year
Reinsurance recoverables
Net liability-end of year
Gross estimated liability-latest
Reinsurance recoverables-latest
Net estimated liability-latest
2020
2019
2018
2017
As of and for the Year Ended December 31,
2015
2014
2016
2013
2012
2011
2010
$ 461,270
$ 488,194
$ 476,321
$ 490,969
$ 476,597
$ 485,716
$ 420,767
$ 394,668
$ 371,657
$ 352,098
$ 351,244
153,727
164,595
230,294
159,234
241,032
282,242
164,466
231,473
283,812
305,024
174,506
250,306
290,287
310,140
319,817
132,364
189,367
223,465
241,589
252,714
255,581
133,288
178,411
207,626
223,743
231,346
234,480
235,562
124,855
175,822
199,741
213,847
221,363
223,829
225,169
225,320
130,204
181,739
211,578
223,941
231,433
233,137
233,905
233,880
233,922
128,854
176,774
205,171
219,310
224,354
226,644
227,147
226,928
226,866
226,832
2020
2019
2018
2017
As of and for the Year Ended December 31,
2015
2014
2016
2013
2012
2011
2010
$ 433,350
$ 434,273
393,948
$ 434,481
400,312
376,584
$ 434,813
391,630
372,379
359,549
$ 440,268
406,253
376,201
361,335
353,983
$ 390,452
348,660
313,100
287,131
276,309
272,178
$ 357,300
328,182
295,788
274,214
255,368
248,746
245,071
$ 342,767
308,028
283,592
263,787
250,064
236,373
232,657
229,932
$ 334,788
309,096
282,441
268,759
255,925
248,353
239,476
237,497
236,440
$ 314,561
293,480
273,332
254,652
245,869
238,404
235,047
229,623
228,827
228,372
(54,844)
(82,373)
(114,385)
(117,048)
(131,733)
(148,589)
(149,597)
(141,725)
(115,658)
(122,872)
2020
$ 567,581
106,311
461,270
2019
$ 610,566
122,372
488,194
549,626
116,276
433,350
2018
$ 584,719
108,398
476,321
498,879
104,931
393,948
As of and for the Year Ended December 31,
2015
$ 553,977
68,261
485,716
384,625
30,642
353,983
2014
$ 482,012
61,245
420,767
310,851
38,673
272,178
2016
$ 560,321
83,724
476,597
420,833
61,284
359,549
2017
$ 574,054
83,085
490,969
461,338
84,754
376,584
2013
$ 455,014
60,346
394,668
277,445
32,374
245,071
2012
$ 423,842
52,185
371,657
256,778
26,846
229,932
2011
$ 403,872
51,774
352,098
262,400
25,960
236,440
2010
$ 404,391
53,147
351,244
252,849
24,477
228,372
In evaluating the information in the table, it should be noted that each amount entered incorporates the effects of
all changes in amounts entered for prior periods. Thus, if the 2020 estimate for a previously incurred loss was $150 and
the loss was reserved at $100 in 2016, the $50 deficiency (later estimate minus original estimate) would be included in
the cumulative (redundancy) deficiency in each of the years 2016-2020 shown in the table. It should further be noted that
the table does not present accident or policy year development data. In addition, conditions and trends that have affected
the development of liability in the past may not necessarily recur in the future. Accordingly, it is not appropriate to
extrapolate future redundancies or deficiencies from the table.
The table shows that we have substantially benefited in the current and prior years from releasing redundant
reserves. In the years ended December 31, 2020, 2019, and 2018 we decreased loss reserves related to prior years by
$54,844, $42,049 and $56,488, respectively. Reserves and development are discussed further in Item 7—Management's
Discussion and Analysis of Financial Condition and Results of Operations, Executive Summary and Overview.
As a result of our focus on core business lines since our founding in 1979, we believe we have no specific
exposure to asbestos or environmental pollution liabilities.
Reinsurance
Reinsurance involves an insurance company transferring (ceding) a portion of its exposure on insurance
underwritten by it to another insurer (reinsurer). The reinsurer assumes a portion of the exposure in return for a share of
the premium. Reinsurance does not legally discharge an insurance company from its primary liability for the full amount
of the policies, but it does make the reinsurer liable to the company for the reinsured portion of any loss realized.
13
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 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 that during 2020 protected 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"). In 2020, we 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.
For 2021, we have purchased the same 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% of
$265,000 for the 4th layer. As a result of the changes to the models, our catastrophe reinsurance in 2021 protects us in
the event of a “135-year storm.”
We also have casualty excess of loss reinsurance for large casualty losses occurring in our automobile,
homeowners, dwelling fire, business owner, 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.
Our reinsurance program excludes coverage for acts of terrorism. The Terrorism Risk Insurance Program
Reauthorization Act of 2019 (“TRIPRA”) was signed into law on December 20, 2019 which extended TRIA through the
year 2027. The intent of this legislation is to provide federal assistance to the insurance industry for the needs of
commercial insurance policyholders with the potential exposure for losses due to acts of terrorism. The TRIEA provides
reinsurance for certified acts of terrorism.
In addition to the above mentioned reinsurance programs and as described in more detail above under The
Massachusetts Property and Casualty Insurance Market, we are a participant in CAR, a state-established body that, in
part, runs the residual market reinsurance programs for commercial automobile insurance in Massachusetts under which
premiums, expenses, losses and loss adjustment expenses on ceded business are shared by all insurers writing
automobile insurance in Massachusetts. We also participate in the FAIR Plan in which premiums, expenses, losses and
loss adjustment expenses on homeowners business that cannot be placed in the voluntary market are shared by all
insurers writing homeowners insurance in Massachusetts. 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, 2020, the
FAIR Plan purchased $1,800,000 of catastrophe reinsurance for property losses with retention of $100,000.
At December 31, 2020, we also had $129,766 due from CAR comprising of loss and loss adjustment expense
reserves, unearned premiums and reinsurance recoverables.
14
On March 10, 2005, our Board of Directors (the “Board”) adopted a resolution that prohibits Safety from
purchasing finite reinsurance (reinsurance that transfers only a relatively finite or limited amount of risk to the reinsurer)
without approval by the Board. To date, the Company has never purchased a finite reinsurance contract.
Competition
The property and casualty insurance business is highly competitive and many of our competitors have
substantially greater financial and other resources than we do. We compete with both large national writers and smaller
regional companies. Our competitors include companies which, like us, serve the independent agency market, as well as
companies which sell insurance directly to customers. Direct writers may have certain competitive advantages over
agency writers, including increased name recognition, loyalty of the customer base to the insurer rather than to an
independent agency, and potentially, lower cost structures. A material reduction in the amount of business independent
agents sell would adversely affect us. Further, we and others compete on the basis of the commissions and other cash
and non-cash incentives provided to agents.
Although, historically, a number of national insurers that are much larger than we are have chosen not to
compete in a material way in the Massachusetts private passenger automobile market, since 2008, several new
companies have entered the market. These companies include some that would be able to sustain significant losses in
order to acquire market share, as well as others which use distribution methods that compete with the independent agent
channel. There can be no assurance that we will be able to compete effectively against these companies in the future.
Our principal competitors within the Massachusetts private passenger automobile insurance market are
MAPFRE SA, Government Employees Insurance Company and Liberty Mutual Insurance Company, which held 22.2%,
15.5% and 8.5% market shares based on premiums, respectively, in 2020 according to CAR.
We are the second largest writer of commercial automobile insurance in Massachusetts with a market share of
12.8%. Other principal competitors in the Massachusetts commercial automobile insurance market are MAPFRE SA,
Arbella Mutual Insurance Company and The Travelers Indemnity Insurance Company, which held 15.3%, 10.9% and
7.8% market shares based on premium, respectively, according to CAR. This includes our share of residual market
business as one of four servicing carriers in CAR’s Commercial Automobile Program and one of two servicing carriers
in CAR’s Taxi/Limo Program.
We are the third largest writer of homeowners insurance business in Massachusetts, with a market share of
7.0% in 2019. Our principal competitors within the Massachusetts homeowners insurance market are MAPFRE SA,
Liberty Mutual and Chubb, which held 13.1%, 9.8% and 6.3% market shares respectively in 2019 (according to S&P
Global Market Intelligence).
Human Capital
At December 31, 2020, we employed 586 employees who all work in the New England region. Prior to
COVID-19, approximately half of our employees particpated in a work from home program that helps contribute to a
flexible work-life balance and allows the Company to minimize the real estate rented at our home office. In response to
the pandemic, we quickly transitioned all other employees to a work from home environment and have the capacity for
100% of our workforce to work in a remote setting. Our employees are not covered by any collective bargaining
agreement.
We create a workplace where all employees are treated with dignity and respect, and individual differences are
valued, all with the goal of securing the trust and satisfaction of our employees. The Company is committed to a policy
of inclusiveness and is committed to actively seeking out highly-qualified candidates with diverse gender, race, color,
religion, ethnicity, age, marital status, handicap, sexual orientation, gender identity or expression, and backgrounds.
We foster this culture through our robust learning and development program and our competitive compensation
and health and benefit programs.
15
Our employees give both their time and their financial resources to charities of all types, and the company
promotes corporate citizenship through charitable donations and company-sponsored volunteer activities. Safety is
committed to making a positive impact on the communities where our employees live and work through our matching
gift program, corporate giving and employee volunteerism. We help employees amplify their community impact by
providing our employees with a 1:1 match on their donations to recognized charitable organizations. The Safety
Insurance Charitable Foundation was established in 2005 and has provided financial support for a wide array of charities
in areas such as community service, education, job training, homelessness, arts/culture, food banks, youth programs,
healthcare, medical research and disaster relief.
The reputation of the Company depends on the conduct of its Board of Directors, officers, and employees.
Every employee who is associated with Safety must play a part in maintaining our corporate reputation for the highest
ethical standards. Management considers our relationship with our employees to be strong.
Investments
Investment income is an important source of revenue for us and the return on our investment portfolio has a
material effect on our net earnings. Our investment objective is to focus on maximizing total returns while investing
conservatively. We maintain a high-quality investment portfolio consistent with our established investment policy. As
of December 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.
According to our investment guidelines, no more than 2.0% of our portfolio may be invested in the securities of
any one issuer (excluding U.S. government-backed securities). In addition, no more than 0.5% of our portfolio may be
invested in securities of any one issuer rated "Baa," or the lowest investment grade assigned by Moody's. Of the less
than 15.0% of our portfolio invested in senior bank loans and high yield bonds at December 31, 2020, no more than
5.0% may be invested in the securities of any one issuer, no more than 10.0% may be invested in any issuers total
outstanding debt issue, and a maximum of 10.0% may be invested in securities unrated or rated "B-" or below by
Moody's. We continually monitor the mix of taxable and tax-exempt securities in an attempt to maximize our total after-
tax return. We utilize the services of third-party investment managers.
We believe that the incorporation of material, non-financial factors into investment selection and risk
management has the potential to enhance long-term investment returns. We incorporate Environmental, Social &
Governance (“ESG”) factors managed for us by third-party investment managers. We measure our exposure to ESG
risks at both individual asset classes and total portfolio levels.
16
The following table reflects the composition of our investment portfolio as of December 31, 2020 and 2019.
U.S. Treasury Securities
Obligations of states and political subdivisions
Residential mortgage-backed securities (1)
Commercial mortgage-backed securities
Other asset-backed securities
Corporate and other securities
Subtotal, fixed maturity securities
Short term investments
Equity securities (2)
Other invested assets (3)
As of December 31,
2020
2019
Estimated
Fair Value Portfolio
% of
$
$
1,865
222,389
241,597
126,035
73,124
591,643
1,256,653
441
205,254
45,239
1,507,587
0.1 % $
14.8
16.0
8.4
4.9
39.2
83.4
0.0
13.6
3.0
100.0 % $
Estimated
Fair Value
1,512
251,396
307,202
109,738
36,222
521,970
% of
Portfolio
0.1 %
17.4
21.3
7.6
2.5
36.2
1,228,040
-
177,637
37,278
1,442,955
85.1
0.0
12.3
2.6
100.0 %
(1) Residential mortgage-backed securities consists primarily of obligations of U.S. Government agencies including collateralized mortgage
obligations and mortgage-backed securities 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) Other invested assets are accounted for under the equity method which approximates fair value.
The principal risks inherent in holding mortgage-backed securities and other pass-through securities are
prepayment and extension risks, which affect the timing of when cash flows will be received. When interest rates
decline, mortgages underlying mortgage-backed securities tend to be prepaid more rapidly than anticipated, causing early
repayments. When interest rates rise, the underlying mortgages tend to be prepaid at a slower rate than anticipated,
causing the principal repayments to be extended. Although early prepayments may result in acceleration of income from
recognition of any unamortized discount, the proceeds typically are reinvested at a lower current yield, resulting in a net
reduction of future investment income. In addition, in the current market environment, such investments can also
contain liquidity risks.
The Company invests in bank loans which are primarily investments in senior secured floating rate loans that
banks have made to corporations. The loans are generally priced at an interest rate spread over the floating rate feature;
this asset class provides protection against rising interest rates. However, this asset class is subject to default risk since
these investments are typically below investment grade.
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, preferred stock, mutual funds and interests in
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.
17
The following table reflects our investment results for each of the three-year period ended December 31, 2020,
2019 and 2018.
Average cash and invested securities (at cost)
Net investment income (1)
Net effective yield (2)
2020
1,401,881
41,045
2.9 %
Years Ended December 31,
2019
1,365,830
46,665
$
$
$
$
3.4 %
$
$
2018
1,317,380
43,788
3.3 %
(1) After investment expenses, excluding realized investment gains or losses.
(2) Net investment income for the period divided by average invested securities and cash for the same period.
The decrease in yield is a result of lower floating yields on our bank loan portfolio, lower interest income on
certain partnership investments and fixed maturity amortization resulting from prepayment activity on certain residential
mortgage-backed securities.
As of December 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, senior bank loans and high yield bonds.
The composition of our fixed income security portfolio by rating is presented in the following table.
U.S. Treasury securities and obligations of U.S. Government
agencies
Aaa/Aa
A
Baa
Ba
B
Caa/Ca
Not rated
Total
As of December 31,
2020
Estimated
Fair Value
Percent
2019
Estimated
Fair Value
Percent
$
$
256,683
327,775
260,048
220,171
68,135
93,824
5,067
24,950
1,256,653
20.4 % $
26.1
20.7
17.5
5.4
7.5
0.4
2.0
100.0 % $
308,713
320,532
247,334
175,147
65,010
86,595
2,896
21,813
1,228,040
25.1 %
26.1
20.1
14.3
5.3
7.1
0.2
1.8
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.
The Securities Valuation Office of the National Association of Insurance Commissioners (the "SVO") evaluates
all public and private bonds purchased as investments by insurance companies. The SVO assigns one of six investment
categories to each security it reviews. Category 1 is the highest quality rating and Category 6 is the lowest. Categories 1
and 2 are the equivalent of investment grade debt as defined by rating agencies such as Standard & Poor's Ratings
Services and Moody's, while Categories 3-6 are the equivalent of below investment grade securities. SVO ratings are
reviewed at least annually. At December 31, 2020, 68.0% of our available for sale fixed maturity investments were rated
Category 1 and 17.2% were rated Category 2, the two highest ratings assigned by the SVO.
18
The following table indicates the composition of our fixed income security portfolio (at carrying value) by time
to maturity as of December 31, 2020.
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years through twenty years
Due after twenty years
Asset-backed securities (1)
Totals
As of December 31, 2020
Estimated
Fair Value
Percent
108,572
271,140
353,369
80,657
2,159
440,756
1,256,653
8.6 %
21.6
28.1
6.4
0.2
35.1
100.0 %
$
$
(1) Actual maturities of asset-backed securities may differ from contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties. Prepayment rates are influenced by a number of factors that cannot be predicted with
certainty, including: the relative sensitivity of the underlying mortgages or other collateral to changes in interest rates; a variety of economic,
geographic and other factors; and the repayment priority of the securities in the overall securitization structures.
Ratings
A.M. Best, which rates insurance companies based on factors of concern to policyholders, currently assigns the
Company an "A (Excellent)" rating. Our "A" rating was reaffirmed by A.M. Best on May 5, 2020. Such rating is the
third highest rating of 13 ratings that A.M. Best assigns to solvent insurance companies, which currently range from
"A++ (Superior)" to "D (Poor)." Publications of A.M. Best indicate that the "A" rating is assigned to those companies
that in A.M. Best's opinion have an excellent ability to meet their ongoing obligations to policyholders over a long period
of time. In evaluating a company's financial and operating performance, A.M. Best reviews the Company's profitability,
leverage and liquidity, as well as its book of business, the adequacy and soundness of its reinsurance, the quality and
estimated fair value of its assets, the adequacy of its loss reserves, the adequacy of its surplus, its capital structure, the
experience and competence of its management and its market presence. A.M. Best's ratings reflect its opinion of an
insurance company's financial strength, operating performance and ability to meet its obligations to policyholders and
are not evaluations directed to purchasers of an insurance company's securities.
In assigning the Company’s rating, A.M. Best recognized its solid risk-adjusted capitalization, conservative
operating strategy, and long-standing agency relationships. A.M. Best also noted among our positive attributes our
favorable investment leverage, our disciplined underwriting approach, and our expertise in the closely managed
Massachusetts automobile insurance market. A.M. Best cited other factors that partially offset these positive attributes,
including our concentration of business in the Massachusetts private passenger automobile market which exposes our
business to regulatory actions.
Supervision and Regulation
Introduction. Our principal operations are conducted through the Insurance Subsidiaries which are subject to
comprehensive regulation by state insurance departments, primarily through our domestic regulator, the Massachusetts
Division of Insurance, of which the Commissioner is the senior official. The Commissioner is appointed by the
Governor. We are subject to the authority of the Commissioner in many areas of our business under Massachusetts law,
including:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
our licenses to transact insurance;
the rates and policy forms we may use;
our financial condition including the adequacy of our reserves and provisions for unearned premium;
the solvency standards that we must maintain;
19
(cid:120)
(cid:120)
(cid:120)
the type and size of investments we may make;
the prescribed or permitted statutory accounting practices we must use; and
the nature of the transactions we may engage in with our affiliates.
In addition, the Commissioner periodically conducts financial and market conduct examinations of all licensees
domiciled in Massachusetts. Our most recent financial condition examination was for the five-year period ending
December 31, 2018. The Division had no material findings as a result of this examination.
We are also required to be licensed by the insurance department in each state in which we do business, as well
as to comply with the various laws and regulations of those jurisdictions, including those governing our use of rates and
policy forms in those states.
Insurance Holding Company Regulation. Our principal operating subsidiaries are insurance companies, and
therefore we are subject to certain laws in Massachusetts regulating insurance holding company systems. These laws
require that we file a registration statement with the Commissioner that discloses the identity, financial condition, capital
structure and ownership of each entity within our corporate structure and any transactions among the members of our
holding company system. In some instances, we must provide prior notice to the Commissioner for material transactions
between our insurance company subsidiaries and other affiliates in our holding company system. These holding
company statutes also require, among other things, prior approval of the payment of extraordinary dividends or
distributions and any acquisition of a domestic insurer and that we file an annual Enterprise Risk Management report
with the Commissioner.
Insurance Regulation Concerning Dividends. We rely on dividends from the Insurance Subsidiaries for our
cash requirements. The insurance holding company law of Massachusetts requires notice to the Commissioner of any
dividend to the shareholders of an insurance company. The Insurance Subsidiaries may not make an "extraordinary
dividend" until thirty days after the Commissioner has received notice of the intended dividend and has not objected in
such time. As historically administered by the Commissioner, this provision requires the prior approval by the
Commissioner of an extraordinary dividend. An extraordinary dividend is defined as any dividend or distribution that,
together with other distributions made within the preceding twelve months exceeds the greater of 10.0% of the insurer's
surplus as of the preceding December 31, or 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. Under Massachusetts law, an
insurer may pay cash dividends only from its unassigned funds, also known as its 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, 2020, the statutory surplus of Safety Insurance was $754,066 and its net income for 2020 was $121,446.
A maximum of $121,446 will be available during 2021 for such dividends without prior approval of the Commissioner.
Acquisition of Control of a Massachusetts Domiciled Insurance Company. Massachusetts law requires advance
approval by the Commissioner of any change in control of an insurance company that is domiciled in Massachusetts.
That law presumes that control exists where any person, directly or indirectly, owns, controls, holds the power to vote or
holds proxies representing 10.0% or more of our outstanding voting stock. Even persons who do not acquire beneficial
ownership of more than 10.0% of the outstanding shares of our common stock may be deemed to have acquired control
if the Commissioner determines that control exists in fact. Any purchaser of shares of common stock representing 10.0%
or more of the voting power of our capital stock will be presumed to have acquired control of the Insurance Subsidiaries
unless, following application by that purchaser the Commissioner determines that the acquisition does not constitute a
change of control or is otherwise not subject to regulatory review. These requirements may deter, delay or prevent
transactions affecting the control of or the ownership of our common stock, including transactions that could be
advantageous to our stockholders.
Protection Against Insurer Insolvency. Massachusetts law requires that insurers licensed to do business in
Massachusetts participate in the Massachusetts Insurers Insolvency Fund ("Insolvency Fund"). The Insolvency Fund
must pay any claim up to $300 of a policyholder of an insolvent insurer if the claim existed prior to the declaration of
insolvency or arose within sixty days after the declaration of insolvency. Members of the Insolvency Fund are assessed
the amount the Insolvency Fund deems necessary to pay its obligations and expenses in connection with handling
20
covered claims. Subject to certain exceptions, assessments are made in the proportion that each member's net written
premiums for the prior calendar year for all property and casualty lines bore to the corresponding net written premiums
for Insolvency Fund members for the same period. As a matter of Massachusetts law, insurance rates and premiums
include amounts to recoup any amounts paid by insurers for the costs of the Insolvency Fund. By statute, no insurer in
Massachusetts may be assessed in any year an amount greater than two percent of that insurer's direct written premium
for the calendar year prior to the assessment. We account for allocations from the Insolvency Fund as underwriting
expenses. CAR also assesses its members as a result of insurer insolvencies. Because CAR is not able to recover an
insolvent company's share of the net CAR losses from the Insolvency Fund, CAR must increase each of its member's
shares of the deficit in order to compensate for the insolvent carrier's inability to pay its deficit assessment. It is
anticipated that there will be future assessments from time to time relating to various insolvencies.
The Insurance Regulatory Information System. The Insurance Regulatory Information System ("IRIS") was
developed to help state insurance regulators identify companies that may require special financial attention. IRIS consists
of a statistical phase and an analytical phase whereby financial examiners review annual statements and financial ratios.
The statistical phase consists of 13 key financial ratios based on year-end data that are generated annually from the
database of the National Association of Insurance Commissioners ("NAIC"). Each ratio has an established "usual range"
of results. These ratios assist state insurance departments in executing their statutory mandate to oversee the financial
condition of insurance companies.
A ratio result falling outside the usual range of IRIS ratios is not considered a failing result; rather, unusual
values are viewed as part of the regulatory early monitoring system. Furthermore, in some years, it may not be unusual
for financially sound companies to have several ratios with results outside the usual ranges. Generally, an insurance
company will become subject to regulatory scrutiny if it falls outside the usual ranges of four or more of the ratios. In
2020, 2019, and 2018 all our ratios for all our Insurance Subsidiaries were within the normal range.
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. The
risk-based capital formula for property and casualty insurance companies measures three major areas of risk facing
property and casualty insurers:
(cid:120)
(cid:120)
(cid:120)
underwriting, which encompasses the risk of adverse loss developments and inadequate pricing;
declines in asset values arising from market and/or credit risk; and
off-balance sheet risk arising from adverse experience from non-controlled assets, guarantees for affiliates
or other contingent liabilities and reserve and premium growth.
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. The first level, the company action
level, as defined by the NAIC, requires an insurer to submit a plan of corrective actions to the Commissioner if total
adjusted capital falls below 200% of the risk-based capital amount. The regulatory action level, as defined by the NAIC
requires an insurer to submit a plan containing corrective actions and requires the Commissioner to perform an
examination or other analysis and issue a corrective order if total adjusted capital falls below 150.0% of the risk-based
capital amount. The authorized control level, as defined by the NAIC, authorizes the Commissioner to take whatever
regulatory actions he or she considers necessary to protect the best interest of the policyholders and creditors of the
insurer which may include the actions necessary to cause the insurer to be placed under regulatory control,
i.e., rehabilitation or liquidation, if total adjusted capital falls below 100.0% of the risk-based capital amount. The fourth
action level is the mandatory control level, as defined by the NAIC, which requires the Commissioner to place the
insurer under regulatory control if total adjusted capital falls below 70.0% of the risk-based capital amount.
21
The formulas have not been designed to differentiate among adequately capitalized companies that operate with
higher levels of capital. Therefore, it is inappropriate and ineffective to use the formulas to rate or to rank these
companies. At December 31, 2020, our Insurance Subsidiaries had total adjusted capital in excess of amounts requiring
company or regulatory action at any prescribed risk-based capital action level.
Own Risk Solvency Assessment. On January 11, 2017, the Division adopted the National Association of
Insurance Commissioners’ Own Risk Solvency Assessment (“ORSA”) Act requiring the Company to file its assessment
on an annual basis. ORSA is an internal process undertaken by an insurer or insurance group to assess the adequacy of
its risk management and current and prospective solvency positions under normal and severe stress scenarios. We have
completed this filing for the 2020 period.
Executive Officers and Directors
The table below sets forth certain information concerning our directors and executive officers as of the date of
this annual report.
Name
George M. Murphy
Christopher T. Whitford
James D. Berry
John P. Drago
Ann M. McKeown
Paul J. Narciso
Stephen A. Varga
David F. Brussard
Frederic H. Lindeberg
Peter J. Manning
David K. McKown
Thalia M. Meehan
Mary C. Moran
___________________
(1) As of February 16, 2021
Age (1)
54
38
61
54
53
57
53
69
80
82
83
59
64
Position
President, Chief Executive Officer
Vice President, Chief Financial Officer and Secretary
Vice President - Underwriting
Vice President - Marketing
Vice President - Insurance Operations
Vice President - Claims
Vice President - Management Information Systems
Chairman of the Board, Director
Director
Director
Director
Director
Director
Years
Employed
by Safety
32
8
38
26
31
30
28
-
-
-
-
-
-
George M. Murphy, CPCU, was appointed President and Chief Executive Officer of the Company effective
April 1, 2016. He previously was the Vice President of Marketing since October 1, 2005. Mr. Murphy was appointed to
the Board of Directors and to the Investment Committee in February 2016. Mr. Murphy has been employed by the
Insurance Subsidiaries for over 32 years. Mr. Murphy is also on the Board of Trustees of the Insurance Library
Association of Boston.
Christopher T. Whitford, was appointed Chief Financial Officer, Vice President and Secretary of the Company
on March 2, 2020. Mr. Whitford, a Certified Public Accountant in Massachusetts, has been employed by the Insurance
Subsidiaries for over 8 years, previously serving as the Company’s Controller since 2012, and began his career at
PricewaterhouseCoopers in 2005. Mr. Whitford serves on the Audit Committee of Guaranty Fund Management Services
and also serves on the Audit Committee of the Massachusetts Property Insurance Underwriting Association (“ FAIR
Plan”).
James D. Berry, CPCU, was appointed Vice President of Underwriting of the Company in July 2015, and was
named as Secretary of the Insurance Subsidiaries at that time. Prior to that, he served as the Vice President of Insurance
Operations since October 2005. Mr. Berry has been employed by the Insurance Subsidiaries for over 38 years and has
directed the Company's Massachusetts Private Passenger line of business since 2001. Mr. Berry is the Chairman of the
Board of Directors of the FAIR Plan and previously served as the Chairman of that organizations Executive Committee.
He has served on several committees of CAR including Market Review and Defaulted Brokers and also served on
Computer Sciences Corporation Series II and Exceed advisory councils. He also serves on the Executive Committee of
the In Control Family Foundation, and is the Chairman of that organizations Finance Committee.
22
John P. Drago was appointed Vice President of Marketing on February 1, 2016. Mr. Drago has been employed
by the Insurance Subsidiaries for over 26 years and most recently served as Director of Marketing.
Ann M. McKeown was appointed Vice President of Insurance Operations of the Company on July 1, 2015. Ms.
McKeown has been employed by the Insurance Subsidiaries for over 31 years wherein she has held management
positions in the Underwriting, Information Technology, and Insurance Operations departments. Ms. McKeown has
served on the MAIP Steering and Operations Committees of CAR.
Paul J. Narciso was appointed Vice President of Claims of the Company on August 5, 2013. Mr. Narciso has
held various adjusting and claims management positions with the Company since 1990. Mr. Narciso has 34 years of
claim experience having worked at two national carriers prior to joining Safety. He currently serves on the Governing
Board of the Massachusetts Insurance Fraud Bureau and the Claims Subcommittee at Commonwealth Automobile
Reinsurers.
Stephen A. Varga was appointed Vice President of Management Information Systems of the Company on
August 6, 2014. Mr. Varga has held various information technology positions with the Company since 1992 and most
recently served as Senior Director of MIS.
David F. Brussard was appointed Chairman of the Board in March 2004 and has served as a director of the
Company since October 2001. Mr. Brussard served as President and Chief Executive Officer of the Company from June
2001 until March 31, 2016. Mr. Brussard was also appointed Chairman of the Investment Committee on February 22,
2017.
Frederic H. Lindeberg has served as a director of the Company since August 2004. Mr. Lindeberg has had a
consulting practice providing taxation, management and investment counsel since 1991, focusing on finance, real estate,
manufacturing and retail industries. Mr. Lindeberg retired in 1991 as Partner-In-Charge of various KPMG tax offices,
after 24 years of service where he provided both accounting and tax counsel to various clients. Mr. Lindeberg is an
attorney and certified public accountant. Mr. Lindeberg was formerly a director of Provident Senior Living Trust
(PSLT) and TAL International (TAL) and formerly an adjunct professor at Penn State Graduate School of Business. Mr.
Lindeberg qualifies as an “Audit Committee Financial Expert” as defined by the U.S. Securities and Exchange
Commission rules.
Peter J. Manning has served as a director of the Company since September 2003. Mr. Manning retired in 2003,
as Vice Chairman Strategic Business Development of FleetBoston Financial, after 32 years with FleetBoston Financial
Corporation (formerly BankBoston) where he also held the positions of Comptroller and Executive Vice President and
Chief Financial Officer. Mr. Manning started his career with Coopers & Lybrand in 1962 prior to his 1972 employment
with BankBoston. He is a former director of the Blue Hills Bank and a former director of Thermo Fisher Scientific and
the Lahey Clinic. Mr. Manning qualifies as an “Audit Committee Financial Expert” as defined by the U.S. Securities and
Exchange Commission rules.
David K. McKown has served as director of the Company since November 2002. Mr. McKown has been a
Senior Advisor to Eaton Vance Management since 2000, focusing on business origination in real estate and asset-based
loans. Mr. McKown retired in March 2000 having served as a Group Executive with BankBoston since 1993, where he
focused on acquisitions and high-yield bank debt financings. Mr. McKown has been in the banking industry for 52 years,
worked for BankBoston for over 32 years and had previously been the head of BankBoston's real estate department,
corporate finance department, and a managing director of BankBoston's private equity unit. Mr. McKown is currently a
director of Global Partners L.P., and various privately held companies and is also a former director of Newcastle
Investment Corp. On February 24, 2021, Mr. McKown communicated his intention to resign at the end of his current
term, which is the next annual meeting on May 19, 2021.
Thalia M. Meehan was appointed Director of the Company on July 3, 2017. Ms. Meehan has also been
appointed to serve as a member of the Investment Committee, the Compensation Committee and the Nominating and
Governance Committee of the Board. Ms. Meehan, a Chartered Financial Analyst, has over 30 years of experience in the
23
investment sector. Ms. Meehan retired from Putnam Investments in 2016 with 27 years of experience and most recently
served as a Team Leader and Portfolio Manager at Putnam Investments. Ms. Meehan currently serves on the Board of
Cambridge Bancorp where she is a member of the Trust and Asset and Liability Committees and also serves on the
Municipal Securities Rulemaking Board, the Strategic Advisory Committee of Build America Mutual and the Board of
Boston Women in Public Finance.
Mary C. Moran was appointed Director of the Company on March 27, 2020. Ms. Moran has over 40 years of
financial experience in both private industry as well as consulting. Ms. Moran began her career at KPMG, previously
Peat Marwick, where she became a Senior Manager before serving as Senior Vice President of Finance and
Administration for Boston Sand and Gravel Company from 1990 to 2001. Since 2002 she has served as CEO of MCM
Financial Consulting, focusing on projects within in the banking, construction, higher education, manufacturing, not-for-
profit and professional services industries. Ms. Moran is currently a director of Care Dimensions where she serves on the
finance and audit committee and is a former director and audit committee member of Danvers Bankcorp, the College of
the Holy Cross and Catholic Memorial School. Ms. Moran graduated from Northeastern University with a M.B.A. and
MS in Accounting and from the College of the Holy Cross with a degree in Economics. Ms. Moran qualifies as an
“Audit Committee Financial Expert” as defined by the U.S. Securities and Exchange Commission rules.
The Company has adopted a Code of Business Conduct and Ethics (“Code of Ethics”) that applies to all
employees, including executive officers, and to directors. The Code of Ethics is available on the About Us, Investor
Information page of the Company’s website at www.safetyinsurance.com. If the Company ever were to amend or waive
any provision of its Code of Ethics that applies to the Company’s principal executive officer, principal financial officer,
principal accounting officer or any person performing similar functions, the Company intends to satisfy its disclosure
obligations, if any, with respect to any such waiver or amendment by posting such information on its website set forth
above rather than by filing a Current Report on Form 8-K.
ITEM 1A. RISK FACTORS
An investment in our common stock involves a number of risks. Any of the risks described below could result in
a significant or material adverse effect on our results of operations or financial condition, and a corresponding decline
in the market price of our common stock.
We operate in a heavily regulated industry and are subject to regulations and laws in various jurisdictions:
We are subject to comprehensive government regulation and our ability to earn profits may be restricted by these
regulations.
General Regulation. We are subject to regulation by the state insurance department of each state in which we
do business. In each jurisdiction, we must comply with various laws and regulations, including those involving:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
approval or filing of premium rates and policy forms;
limitation of the right to cancel or non-renew policies in some lines;
requirements to participate in residual markets;
licensing of insurers and agents; and
regulation of the right to withdraw from markets or terminate involvement with agencies;
24
We also are subject to enhanced regulation by our domestic regulator, the Massachusetts Division of Insurance,
from which we must obtain prior approval for certain corporate actions. Among other things, we must comply with laws
and regulations governing:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
transactions between an insurance company and any of its affiliates;
the payment of dividends;
the acquisition of an insurance company or of any company controlling an insurance company;
solvency standards;
(cid:120) minimum amounts of capital and surplus which must be maintained;
(cid:120)
(cid:120)
(cid:120)
(cid:120)
limitations on types and amounts of investments;
restrictions on the size of risks which may be insured by a single company;
deposits of securities for the benefit of policyholders; and
reporting with respect to financial condition.
In addition, insurance department examiners from Massachusetts perform periodic financial and market conduct
examinations of insurance companies. Such regulation is generally intended for the protection of policyholders rather
than security holders.
Massachusetts, New Hampshire and Maine require that all licensed property and casualty insurers bear a portion
of the losses suffered by some insureds as a result of impaired or insolvent insurance companies by participating in each
state’s insolvency fund. Members of the state’s insolvency fund are assessed a proportionate share of the obligations and
expenses of the fund in connection with an insolvent insurer. These assessments are made by the fund to cover the cost
of paying eligible claims of policyholders of these insolvent insurers. Similarly, assessments are made by each state’s
commercial automobile insurance residual market mechanism to recover the shares of net losses that would have been
assessed to the insolvent companies but for their insolvencies. In addition, Massachusetts has established an underwriting
association in order to ensure that property insurance is available for owners of high risk property who are not able to
obtain insurance from private insurers. The losses of this underwriting association, the Massachusetts Property Insurance
Underwriting Association, are shared by all insurers that write property and casualty insurance in Massachusetts. We are
assessed from time to time to pay these losses. The effect of these assessments could reduce our profitability in any given
period and limit our ability to grow our business.
Because we are unable to predict with certainty changes in the political, economic or regulatory environments
of the states in which we operate in the future, there can be no assurance that existing insurance-related laws and
regulations will not become more restrictive in the future or that new restrictive laws will not be enacted and, therefore, it
is not possible to predict the potential effects of these laws and regulations on us.
There are anti-takeover provisions contained in our organizational documents and in laws of the State of Delaware
and the Commonwealth of Massachusetts that could impede an attempt to replace or remove our management or
prevent the sale of our company, which could diminish the value of our common stock.
Our certificate of incorporation, bylaws and the laws of Delaware contain provisions that may delay, deter or
prevent a takeover attempt that shareholders might consider in their best interests. For example, our organizational
documents provide for a classified board of directors with staggered terms, prevent shareholders from taking action by
written consent, prevent shareholders from calling a special meeting of shareholders, provide for supermajority voting
requirements to amend our certificate of incorporation and certain provisions of our bylaws and provide for the filling of
vacancies on our board of directors by the vote of a majority of the directors then in office. These provisions will render
the removal of the incumbent board of directors or management more difficult. In addition, these provisions may prevent
shareholders from receiving the benefit of any premium over the market price of our common stock offered by a bidder
25
in a potential takeover. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect
the prevailing market price of our common stock if they are viewed as discouraging takeover attempts in the future.
The Massachusetts insurance law prohibits any person from acquiring control of us, and thus indirect control of
the Insurance Subsidiaries, without the prior approval of the Commissioner. That law presumes that control exists where
any person, directly or indirectly, owns, controls, holds the power to vote or holds proxies representing 10.0% or more of
our outstanding voting stock. Even persons who do not acquire beneficial ownership of more than 10.0% of the
outstanding shares of our common stock may be deemed to have acquired such control if the Commissioner determines
that such control exists in fact. Therefore, any person seeking to acquire a controlling interest in us would face regulatory
obstacles which could delay, deter or prevent an acquisition that shareholders might consider in their best interests.
Section 203 of the General Corporation Law of Delaware, the jurisdiction in which the Company is organized, may
affect the ability of an "interested stockholder" to engage in certain business combinations including mergers,
consolidations or acquisitions of additional shares, for a period of three years following the time that the stockholder
becomes an interested stockholder. An interested stockholder is defined to include persons owning directly or indirectly
15.0% or more of the outstanding voting stock of the corporation.
Our private passenger automobile business is concentrated in in New England:
With a concentration of private passenger automobile insurance, our business may be adversely affected by
conditions in this industry.
Approximately 54.9% of our direct written premiums for the year ended December 31, 2020, were generated
from private passenger automobile insurance policies. As a result of our focus on that line of business, negative
developments in the economic, competitive or regulatory conditions affecting the private passenger automobile insurance
industry could have a material adverse effect on our results of operations and financial condition. In addition, these
developments would have a disproportionate effect on us, compared to insurers which conduct operations in multiple
business lines.
Because we write insurance principally in Massachusetts, our business may be adversely affected by conditions in
Massachusetts, including the impact of additional competitors.
Almost all of our direct written premiums are currently generated in Massachusetts. Our revenues and
profitability are therefore subject to prevailing regulatory, economic, demographic, competitive and other conditions in
Massachusetts. Changes in any of these conditions could make it more costly or difficult for us to conduct our business.
The Massachusetts market has seen an increased level of competition, particularly in the private passenger automobile
insurance line, due to prior changes in regulatory conditions. To date, we have not had a significant decrease in our
private passenger automobile insurance business. However, further competition and adverse results could include loss of
market share, decreased revenue, and/or increased costs.
As writers of property insurance, our Insurance Subsidiaries are exposed to potential losses related to severe
weather:
We have exposure to claims related to severe weather conditions, which may result in an increase in claims frequency
and severity.
We are subject to claims arising out of severe weather conditions, such as rainstorms, snowstorms and
icestorms, that may have a significant effect on our results of operations and financial condition. The incidence and
severity of weather conditions are inherently unpredictable. There is generally an increase in claims frequency and
severity under the private passenger automobile insurance we write when severe weather occurs because a higher
incidence of vehicular accidents and other insured losses tend to occur as a result of severe weather conditions. In
26
addition, we have exposure to an increase in claims frequency and severity under the homeowners and other property
insurance we write because property damage may result from severe weather conditions.
Because some of our insureds live near the Massachusetts coastline, we also have a potential exposure to losses
from hurricanes and major coastal storms such as Nor'easters. Although we purchase catastrophe reinsurance to limit
our exposure to natural catastrophes, in the event of a major catastrophe resulting in property losses to us in excess of
$665,000 our losses would exceed the limits of this reinsurance in addition to losses from our co-participation retention
of a portion of the risk up to $665,000.
Climate change may adversely impact our results of operations.
There are concerns that the increase in weather-related catastrophes and other losses incurred by the industry in
recent years may be indicative of changing weather patterns. This change in weather patterns could lead to higher overall
losses which we may not be able to recover, particularly in light of the current competitive environment, and higher
reinsurance costs. Climate change could also have an impact on issuers of securities in which we invest, resulting in
realized and unrealized losses in future periods which could have a material adverse impact on our results of operations
and/or financial position.
We operate in the highly competitive property and casualty insurance industry:
If we are not able to attract and retain independent agents, it could adversely affect our business.
We market our insurance solely through independent agents. We must compete with other insurance carriers for
the business of independent agents. Some of our competitors offer a larger variety of products, lower prices for insurance
coverage or higher commissions. While we believe that the commissions and services we provide to our agents are
competitive with other insurers, changes in commissions, services or products offered by our competitors could make it
harder for us to attract and retain independent agents to sell our insurance products.
Established competitors with greater resources may make it difficult for us to market our products effectively and
offer our products at a profit.
The property and casualty insurance business is highly competitive and many of our competitors have
substantially greater financial and other resources than we do. We compete with both large national writers and smaller
regional companies. Further, our competitors include other companies which, like us, serve the independent agency
market, as well as companies which sell insurance directly to customers. Direct writers may have certain competitive
advantages over agency writers, including increased name recognition, loyalty of the customer base to the insurer rather
than to an independent agency and, potentially, lower cost structures. A material reduction in the amount of business
independent agents sell would directly and negatively affect our profitability and our ability to compete with insurers that
do not rely solely on the independent agency market to sell their products. Further, our Company and others compete on
the basis of the commissions and other cash and non-cash incentives provided to agents. Although a number of national
insurers that are much larger than we are do not currently compete in a material way in the Massachusetts personal auto
market, if one or more of these companies decided to aggressively enter the market it could reduce our share of the
Massachusetts market and thereby have a material adverse effect on us. These companies include some that would be
able to sustain significant losses in order to acquire market share, as well as others which use distribution methods that
compete with the independent agent channel. Progressive Corporation, GEICO and Allstate, large insurers that market
directly to policyholders rather than through agents, along with other carriers have entered the Massachusetts private
passenger automobile insurance market.
We may enter new markets and there can be no assurance that our diversification strategy will be effective.
Although we intend to concentrate on our core businesses in Massachusetts, New Hampshire, and Maine, we
also may seek to take advantage of prudent opportunities to expand our core businesses into other states where we
27
believe the independent agent distribution channel is strong. As a result of a number of factors, including the difficulties
of finding appropriate expansion opportunities and the challenges of operating in an unfamiliar market, we may not be
successful in this diversification. Additionally, in order to carry out any such strategy we would need to obtain the
appropriate licenses from the insurance regulatory authority of any such state.
The success of our business is subject to operational risks:
We may not be able to successfully alleviate risk through reinsurance arrangements which could cause us to reduce
our premiums written in certain lines or could result in losses.
In order to reduce risk, to increase our underwriting capacity, and mitigate the volatility of losses on our
financial condition and operations, we purchase reinsurance. The availability and the cost of reinsurance protection are
subject to market conditions, which are outside of our control. As a result, we may not be able to successfully alleviate
risk through these arrangements. For example, if reinsurance capacity for homeowner's risks were reduced as a result of
terrorist attacks, climate change or other causes, we might seek to reduce the amount of homeowners business we write.
As a result, the Company may not be able to successfully purchase reinsurance and transfer a portion of the Company’s
risk through reinsurance arrangements. In addition, we are subject to credit risk with respect to our reinsurance because
the ceding of risk to reinsurers does not relieve us of our liability to our policyholders. A significant reinsurer's
insolvency or inability to make payments under the terms of a reinsurance treaty could have a material adverse effect on
our results of operations and financial condition.
As a holding company, Safety Insurance Group, Inc. is dependent on the results of operations of the Safety Insurance
Company.
Safety Insurance Group, Inc. is a company and a legal entity separate and distinct from Safety Insurance
Company, our principal operating subsidiary. As a holding company without significant operations of its own, the
principal sources of Safety Insurance Group, Inc.'s funds are dividends and other distributions from Safety Insurance
Company. Our rights to participate in any distribution of assets of Safety Insurance Company are subject to prior claims
of policyholders, creditors and preferred shareholders, if any, of Safety Insurance Company (except to the extent that our
rights, if any, as a creditor are recognized). Consequently, our ability to pay debts, expenses and cash dividends to our
shareholders may be limited. The ability of Safety Insurance Company to pay dividends is subject to limits under
Massachusetts insurance law. Further, the ability of Safety Insurance Group, Inc. to pay dividends, and our subsidiaries'
ability to incur indebtedness or to use the proceeds of equity offerings, will be subject to limits under our revolving credit
facility.
Our failure to maintain a commercially acceptable financial strength rating would significantly and negatively affect
our ability to implement our business strategy successfully.
A.M. Best has currently assigned Safety Insurance an "A (Excellent)" rating. An "A" rating is A.M. Best's third
highest rating, out of 13 possible rating classifications for solvent companies. An "A" rating is assigned to insurers that
in A.M. Best's opinion have an excellent ability to meet their ongoing obligations to policyholders. Moreover, an "A"
rating is assigned to companies that have, on balance, excellent balance sheet strength, operating performance and
business profile when compared to the standards established by A.M. Best. A.M. Best bases its ratings on factors that
concern policyholders and not upon factors concerning investor protection. Such ratings are subject to change and are not
recommendations to buy, sell, or hold securities. An important factor in an insurer's ability to compete effectively is
its A.M. Best rating. Our A.M. Best rating is lower than those of some of our competitors. Any future decrease in our
rating could affect our competitive position.
Our losses and loss adjustment expenses may exceed our reserves, which could significantly affect our business.
The reserves for losses and loss adjustment expenses that we have established are estimates of amounts needed
to pay reported and unreported claims and related expenses based on facts and circumstances known to us as of the time
28
we established the reserves. Reserves are based on historical claims information, industry statistics and other factors. The
establishment of appropriate reserves is an inherently uncertain process. If our reserves are inadequate and are
strengthened, we would have to treat the amount of such increase as a charge to our earnings in the period that the
deficiency is recognized. As a result of these factors, there can be no assurance that our ultimate liability will not
materially exceed our reserves and have a negative effect on our results of operations and financial condition.
Due to the inherent uncertainty of estimating reserves, it has been necessary, and may over time continue to be
necessary, to revise estimated future liabilities as reflected in our reserves for claims and policy expenses. The historic
development of reserves for losses and loss adjustment expenses may not necessarily reflect future trends in the
development of these amounts. Accordingly, it is not appropriate to extrapolate redundancies or deficiencies based on
historical information.
If we lose key personnel, our ability to implement our business strategy could be delayed or hindered.
The loss of key personnel could prevent us from fully implementing our business strategy and could
significantly and negatively affect our financial condition and results of operations. As we continue to grow, we will
need to recruit and retain additional qualified management personnel, and our ability to do so will depend upon a number
of factors, such as our results of operations and prospects and the level of competition then prevailing in the market for
qualified personnel.
Future sales of shares of our common stock by our existing shareholders in the public market, or the possibility or
perception of such future sales, could adversely affect the market price of our stock.
Investors currently known to be the beneficial owners of greater than 5.0% of our outstanding common stock
hold approximately 48.6% of the common stock of Safety Insurance Group, Inc. on a fully diluted basis. No prediction
can be made as to the effect, if any, that future sales of shares by our existing shareholders, or the availability of shares
for future sale, will have on the prevailing market price of our common stock from time to time. Sales of substantial
amounts of our common stock in the public market by our existing shareholders, or the possibility or perception that
such sales could occur, could cause the prevailing market prices for our common stock to decrease. If such sales reduce
the market price of our common stock, our ability to raise additional capital in the equity markets may be adversely
affected.
We are subject to cybersecurity and privacy risks:
Our business depends on the uninterrupted operation of our systems and business functions, including our
information technology, telecommunications and other business systems. Our business continuity and disaster
recovery plans may not sufficiently address all contingencies.
Our business is highly dependent upon our ability to execute, in an efficient and uninterrupted fashion,
necessary business functions, such as processing new and renewal business, providing customer service, and processing
and paying claims. A shut-down of or inability to access our facility, a power outage, or a failure of one or more of our
information technology, telecommunications or other systems could significantly impair our ability to perform such
functions on a timely basis. If sustained or repeated, such a business interruption, systems failure or service denial could
result in a deterioration in the level of service we provide to our agents and policyholders. We have established a
business continuity plan in an effort to ensure the continuation of core business operations in the event that normal
business operations could not be performed due to a catastrophic event. While we continue to test and assess our
business continuity plan to ensure it meets the needs of our core business operations and addresses multiple business
interruption events, there is no assurance that core business operations could be performed upon the occurrence of such
an event, which may result in a material adverse effect on our financial position and results of operations.
We outsource certain business and administrative functions to third parties and may do so increasingly in the
future. If we fail to develop and implement our outsourcing strategies or our third-party providers fail to perform as
29
anticipated, we may experience operational difficulties, increased costs and a loss of business that may have a material
adverse effect on our results of operations or financial condition.
Our business could be materially and adversely affected by a security breach or other attack involving our computer
systems or the systems of one or more of our agents and vendors.
Our highly automated and networked organization is subject to cyber-terrorism and a variety of other cyber-
security threats. These threats come in a variety of forms, such as viruses and malicious software. Such threats can be
difficult to prevent or detect, and if experienced, could interrupt or damage our operations, harm our reputation or have a
material effect on our operations. Our technology and telecommunications systems are highly integrated and connected
with other networks. Cyber-attacks involving these systems could be carried out remotely and from multiple sources and
could interrupt, damage or otherwise adversely affect the operations of these critical systems. Cyber-attacks could result
in the modification or theft of data, the distribution of false information or the denial of service to users. We obtain,
utilize and maintain data concerning individuals and organizations with which we have a business relationship. Threats
to data security can emerge from a variety of sources and change in rapid fashion, resulting in the ongoing need to
expend resources to secure our data in accordance with customer expectations and statutory and regulatory requirements.
We could be subject to liability if confidential customer information is misappropriated from our technology
systems. Despite the implementation of security measures, these systems may be vulnerable to physical break-ins,
computer viruses, programming errors, attacks by third parties or similar disruptive problems. Any well-publicized
compromise of security could deter people from entering into transactions that involve transmitting confidential
information to our systems, which could have a material adverse effect on our business and reputation. We rely on
services and products provided by many vendors. In the event that one or more of our vendors fails to protect personal
information of our customers, claimants or employees, we may incur operational impairments, or could be exposed to
litigation, compliance costs or reputational damage. We maintain cyber-liability insurance coverage to offset certain
potential losses, subject to policy limits, such as liability to others, costs of related crisis management, data extortion,
applicable forensics and certain regulatory defense costs, fines and penalties.
We believe that we have established and implemented appropriate security measures to provide reasonable
assurance that our information technology systems are secure and appropriate controls and procedures to enable us to
identify and respond to unauthorized access to such systems. While we have not experienced material cyber-incidents to
date, the occurrence and effects of cyber-incidents may remain undetected for an extended period. We periodically
engage third parties to evaluate and test the adequacy of our security measures, controls and procedures. Despite these
security measures, controls and procedures, disruptions to and breaches of our information technology systems are
possible.
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
30
policyholders, including but not limited to, class action lawsuits. As discussed in Note 8 – Commitments and
Contingencies, the Company has been named in a lawsuit alleging that the Company improperly denied coverage to
commercial insureds for loss of business income resulting from the COVID-19 pandemic. 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 COVID-19 pandemic has contributed to volatility in the financial markets. 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.
We invest in securities which are subject to market risk:
Market fluctuations and changes in interest rates can have significant and negative effects on our investment
portfolio.
Our results of operations depend in part on the performance of our invested assets. As of December 31, 2020,
based upon fair value measurement, 83.4% of our investment portfolio was invested in fixed maturity securities, 13.6%
in equity securities and 3.0% in other invested assets. Certain risks are inherent in connection with debt securities
including loss upon default and price volatility in reaction to changes in interest rates and general market factors.
We have a significant investment portfolio and adverse capital market conditions, including but not limited to
volatility and credit spread changes, will impact the liquidity and value of our investments, potentially resulting in higher
realized or unrealized losses. Values of our investments can also be impacted by reductions in price transparency and
changes in investor confidence and preferences, potentially resulting in higher realized or unrealized losses. If the
carrying value of our investments exceeds the fair value, and the decline in fair value is deemed to be other-than-
temporary, we will be required to write down the value of our investments, which could materially harm our results of
operations and financial condition.
ITEM 1B. UNRESOLVED STAFF COMMENTS
As of the date of this report, the Company had no unresolved comments from the Commission staff regarding
its periodic or current reports under the Exchange Act.
ITEM 2. PROPERTIES
We conduct most of our operations in approximately 72 thousand square feet of leased space at 20 Custom
House Street in downtown Boston, Massachusetts. Our lease will expire on December 31, 2028. This real estate space
was remodeled in 2018 and included capital expenditures to update lighting as well as heating, ventilation and air
condition systems with state of the art and environmentally focused technologies.
ITEM 3. LEGAL PROCEEDINGS
Our Insurance Subsidiaries are parties to a number of lawsuits arising in the ordinary course of their insurance
business. We believe that the ultimate resolution of these lawsuits will not, individually or in the aggregate, have a
material adverse effect on our financial condition.
Safety Insurance has been named in a lawsuit alleging that the Company improperly denied coverage to
commercial insureds for loss of business income resulting from the COVID-19 pandemic. 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
31
physical damage or loss to property, our position is that no coverage exists for this peril. As a result, the Company
accrued a reserve of $6,500 for legal defense costs during the year ended December 31, 2020.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable
32
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
As of February 10, 2021, there were 23 holders of record of the Company's common stock, par value $0.01 per
share, and we estimate another 13,092 held in "Street Name."
The closing price of the Company's common stock on February 10, 2021 was $79.43 per share. The Company’s
common stock trades on the NASDAQ stock exchange under the symbol SAFT.
During 2020 and 2019, the Company’s Board of Directors declared four quarterly cash dividends to
shareholders, which were paid and accrued in the amounts of $54,735 and $52,392, respectively. On February 16, 2021,
the Company's Board of Directors declared a quarterly cash dividend of $0.90 per share to shareholders of record on
March 5, 2021 payable on March 15, 2021. The Company plans to continue to declare and pay quarterly cash dividends
in 2021, depending on the Company's financial position and the regularity of its cash flows.
The Company relies on dividends from its Insurance Subsidiaries for a portion of its cash requirements. The
payment by the Company of any cash dividends to the holders of common stock therefore depends on the receipt of
dividend payments from its Insurance Subsidiaries. The payment of dividends by the Insurance Subsidiaries is subject to
limitations imposed by Massachusetts law, as discussed in Item 1—Business, Supervision and Regulation, Insurance
Regulation Concerning Dividends, and also in Item 7—Management's Discussion and Analysis of Financial Condition
and Results of Operations, Liquidity and Capital Resources.
The information called for by Item 201 (d) of Regulation S-K regarding securities authorized for issuance under
equity compensation plans will be contained in the Company's Proxy Statement for its Annual Meeting of Shareholders,
to be held on May 19, 2021 in Boston, MA, which the Company intends to file with the U.S. Securities and Exchange
Commission within 120 days after December 31, 2020 (the Company's fiscal year end), and such information is
incorporated herein by reference.
For information regarding our share repurchase program, refer to Item 8—Financial Statements and
Supplementary Data, Note 14, Share Repurchase Program, of this Form 10-K.
COMMON STOCK PERFORMANCE GRAPH
Set forth below is a line graph comparing the dollar change in the cumulative total shareholder return on the
Company's Common Stock, for the period beginning on December 31, 2015 and ending on December 31, 2020 with the
cumulative total return of the NASDAQ Stock Market Index and a peer group comprised of five selected property &
casualty insurance companies over the same period. The peer group consists of Protective Insurance Corp., Mercury
General Corp., State Auto Financial Corp., Selective Insurance Group, Inc., and Donegal Group, Inc. The graph shows
the change in value of an initial one hundred dollar investment over the period indicated, assuming re-investment of all
dividends.
33
Comparative Cumulative Total Returns since December 31, 2015 Among
Safety Insurance Group, Inc.,
Property & Casualty Insurance Peer Group and the NASDAQ Stock Market Index
The foregoing performance graph and data shall not be deemed "filed" as part of this Form 10-K for purposes of
Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section and should not be
deemed incorporated by reference into any other filing of the Company under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except to the extent the Company specifically incorporates it by reference into such filing.
34
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth our selected historical consolidated financial data as of and for each of the five
years ended December 31, 2020, 2019, 2018, 2017 and 2016.
The selected historical consolidated financial data for the years ended December 31, 2020, 2019, and 2018, and
as of December 31, 2020 and 2019 have been derived from the financial statements of Safety Insurance Group, Inc.
included in this annual report which have been audited. The selected historical consolidated financial data for the years
ended December 31, 2017 and 2016 and as of December 31, 2018, 2017 and 2016 has been derived from Safety
Insurance Group, Inc.'s consolidated financial statements not included in this annual report, which have been audited.
We have prepared the selected historical consolidated financial data in conformity with U. S. generally accepted
accounting principles.
The selected financial data presented below should be read in conjunction with Item 7—Management's
Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and
the accompanying notes included in this Form 10-K in order to more fully understand the historical consolidated
financial data.
Years Ended December 31,
2020
2019
Direct written premiums
Net written premiums
Net earned premiums
Net investment income
Earnings from partnership investments
Net realized gains on investments
Change in net unrealized gains on equity investments
Net impairment losses on investments
Credit loss expense
Finance and other service income
Total revenue
Losses and loss adjustment expenses
Underwriting, operating and related expenses
Interest expense
Total expenses
Income before income taxes
Income tax expense
Net income
Earnings per weighted average common share:
Basic
Diluted
Cash dividends paid per common share
Number of shares used in computing earnings per
share:
Basic
Diluted
$
$
$
$
$
$
$
798,712
763,537
771,078
41,045
6,901
957
10,449
-
(1,054)
16,872
846,248
404,556
266,482
440
671,478
174,770
36,559
138,211
9.25
9.18
3.60
$
$
$
$
$
$
$
$
$
$
852,404
794,409
788,777
46,665
1,937
2,976
21,454
(889)
—
16,833
877,753
509,846
244,136
90
754,072
123,681
24,080
99,601
$
$
$
2018
843,675
786,912
781,587
43,788
6,915
3,226
(16,324)
(228)
—
17,533
836,497
485,513
246,643
90
732,246
104,251
21,056
83,195
$
$
$
2017
827,316
781,054
774,420
38,758
2,082
6,036
—
(256)
—
18,073
839,113
503,887
248,436
90
752,413
86,700
24,313
62,387
6.52
6.46
3.40
$
$
$
5.48
5.43
3.20
$
$
$
4.13
4.10
3.00
$
$
$
2016
811,559
766,470
755,760
38,413
3,185
5,559
—
(798)
—
17,703
819,822
493,433
233,017
90
726,540
93,282
28,697
64,585
4.29
4.27
2.80
15,002,755
15,119,027
15,201,132
15,337,807
15,080,269
15,229,898
15,010,751
15,135,348
14,946,453
15,032,263
35
Balance Sheet Data:
Total cash and investment securities
Total assets
Losses and loss adjustment expense
reserves
Total liabilities
Total shareholders' equity
GAAP Ratios:
Loss ratio (1)
Expense ratio (1)
Combined ratio (1)
2020
2019
Years Ended December 31,
2018
2017
2016
$
1,561,356
2,054,273
$
1,487,362
2,022,669
$
1,370,936
1,856,240
$
1,348,763
1,807,279
$
567,581
1,169,594
884,679
610,566
1,214,263
808,406
584,719
1,137,596
718,644
574,054
1,106,263
701,016
1,300,558
1,758,246
560,321
1,087,520
670,726
52.5 %
34.6
87.1 %
64.6 %
31.0
95.6 %
62.1 %
31.6
93.7 %
65.1 %
32.1
97.2 %
65.3 %
30.8
96.1 %
(1) The loss ratio is the ratio of losses and loss adjustment expenses to net earned premiums. The expense ratio, when calculated on a GAAP
basis, is the ratio of underwriting expense to net earned premiums. The combined ratio is the sum of the loss ratio and the expense ratio. Please refer to
Insurance Ratios under Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations for further discussion on our
GAAP ratios.
36
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with our accompanying consolidated financial
statements and notes thereto, which appear elsewhere in this document. In this discussion, all dollar amounts are
presented in thousands, except share and per share data.
The following discussion contains forward-looking statements. We intend statements which are not historical in
nature to be, and are hereby identified as “forward-looking statements” to be covered by the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. In addition, the Company’s senior management may make forward-
looking statements orally to analysts, investors, the media and others. This safe harbor requires that we specify
important factors that could cause actual results to differ materially from those contained in forward-looking statements
made by or on behalf of us. We cannot promise that our expectations in such forward-looking statements will turn out to
be correct. Our actual results could be materially different from and worse than our expectations. See “Forward-
Looking Statements” below for specific important factors that could cause actual results to differ materially from those
contained in forward-looking statements.
Executive Summary and Overview
In this discussion, “Safety” refers to Safety Insurance Group, Inc. and “our Company,” “we,” “us” and “our”
refer to Safety Insurance Group, Inc. and its consolidated subsidiaries. Our subsidiaries consist of Safety Insurance
Company (“Safety Insurance”), Safety Indemnity Insurance Company (“Safety Indemnity”), Safety Property and
Casualty Insurance Company (“Safety P&C”), Safety Northeast Insurance Company (“Safety Northeast”), Safety Asset
Management Corporation (“SAMC”), and Safety Management Corporation, which is SAMC’s holding company.
We are a leading provider of private passenger automobile (54.9% of our direct written premiums in 2020),
commercial automobile, (14.9% of 2020 direct written premiums), and homeowners (25.0% of 2020 direct written
premiums) insurance. In addition to these coverages, we offer a portfolio of other insurance products, including dwelling
fire, umbrella and business owner policies (totaling 5.2% of 2020 direct written premiums). Operating exclusively in
Massachusetts, New Hampshire and Maine through our insurance company subsidiaries, Safety Insurance, Safety
Indemnity, Safety P&C, (together referred to as the “Insurance Subsidiaries”), we have established strong relationships
with independent insurance agents, who numbered 871 in 1,095 locations throughout these three states during 2020. We
have used these relationships and our extensive knowledge of the market to become the fourth largest private passenger
automobile carrier and the second largest commercial automobile carrier in Massachusetts, capturing an approximate
8.4% and 12.8% share, respectively, of the Massachusetts private passenger and commercial automobile markets in
2020, according to statistics compiled by CAR based on automobile exposures. We are the third largest homeowners
insurance carrier in Massachusetts, with a market share of 7.0% in 2019. Our principal competitors within the
Massachusetts homeowners insurance market are MAPFRE SA, Liberty Mutual Insurance and Chubb, which held
13.1%, 9.8% and 6.3% market shares respectively in 2019 (according to S&P Global Market Intelligence).
Our Insurance Subsidiaries began writing insurance in New Hampshire during 2008 and Maine in 2016. In
November 2020, we formed a fourth insurance subsidiary, Safety Northeast Insurance Company, which became licensed
to write insurance products in Massachusetts in January of 2021. The table below shows the amount of direct written
premiums in each state during the years ended December 31, 2020, 2019, and 2018.
Direct Written Premiums
Massachusetts
New Hampshire
Maine
Total
Years Ended December 31,
2020
2019
2018
764,479
32,334
1,899
798,712
$
$
819,534
31,676
1,194
852,404
$
$
813,857
29,159
659
843,675
$
$
37
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. The
Company has continued to take many actions that address the health and well-being of our employees while still serving
the needs of our agents and insureds.
The pandemic has resulted in fewer cars on the road, resulting in a decrease in frequency of claims, primarily in
our private passenger automobile line of business. As a result, for the year ended December 31, 2020, loss and loss
adjustment expenses incurred decreased by $105,290 or 20.7%, to $404,556 from $509,846 for the comparable 2019
period.
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 I—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. As discussed in Note 8 –
Commitments and Contingencies, the Company has been named in a lawsuit alleging that the Company improperly
denied coverage to commercial insureds for loss of business income resulting from the COVID-19 pandemic. 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. As
result, the Company accrued a reserve of $6,500 for legal defense costs for the year ended December 31, 2020. While we
continue to 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.
Direct written premiums for the year ended December 31, 2020 decreased by $53,692, or 6.3%, to $798,712
from $852,404 for the comparable 2019 period. The 2020 decrease reflects the Safety Personal Auto Relief Credit, a
15% policyholder credit, representing $17,711 in total premium which was applied to personal auto policies for the
months of April, May and June, as well as changes made by CAR to eligibility requirements which impacted the number
of commercial automobile 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.
We define a “catastrophe” as an event that produces pre-tax losses before reinsurance in excess of $1,000 and
involves multiple first-party policyholders, or an event that produces a number of claims in excess of a preset, per-event
threshold of average claims in a specific area, occurring within a certain amount of time following the event.
Catastrophes are caused by various natural events including high winds, winter storms, tornadoes, hailstorms, and
hurricanes. The nature and level of catastrophes in any period cannot be reliably predicted.
Catastrophe losses incurred by the type of event are shown in the following table.
Event
Windstorms and hailstorms
Total losses incurred (1)
Years Ended December 31,
2020
2019
2018
$
$
7,291
7,291
$
$
5,123
5,123
$
$
14,426
14,426
(1) Total losses incurred include losses plus defense and cost containment expenses and excludes adjusting and other claims settlement expenses.
38
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
Massachusetts Private Passenger Automobile
New Hampshire Homeowner
Massachusetts Homeowner
Massachusetts Private Passenger Automobile
Massachusetts Commercial Automobile
New Hampshire Commercial Automobile
Statutory Accounting Principles
Effective Date
May 1, 2020
December 1, 2019
November 1, 2019
September 1, 2019
June 1, 2019
March 1, 2019
Rate Change
-0.6%
3.8%
2.2%
1.9%
3.1%
1.8%
Our results are reported in accordance with GAAP, which differ from amounts reported in accordance with
statutory accounting principles ("SAP") as prescribed by insurance regulatory authorities, which in general reflect a
liquidating, rather than going concern concept of accounting. Specifically, under GAAP:
(cid:120)
(cid:120)
Policy acquisition costs such as commissions, premium taxes and other variable costs incurred which are
directly related to the successful acquisition of a new or renewal insurance contract are capitalized and
amortized on a pro rata basis over the period in which the related premiums are earned, rather than expensed as
incurred, as required by SAP.
Certain assets are included in the consolidated balance sheets whereas, under SAP, such assets are designated as
"nonadmitted assets," and charged directly against statutory surplus. These assets consist primarily of premium
receivables that are outstanding over ninety days, federal deferred tax assets in excess of statutory limitations,
furniture, equipment, leasehold improvements and prepaid expenses.
(cid:120) Amounts related to ceded reinsurance are shown gross of ceded unearned premiums and reinsurance
recoverables, rather than netted against unearned premium reserves and loss and loss adjustment expense
reserves, respectively, as required by SAP.
(cid:120)
(cid:120)
Fixed maturities securities, which are classified as available-for-sale, are reported at current fair values, rather
than at amortized cost, or the lower of amortized cost or market, depending on the specific type of security, as
required by SAP.
The differing treatment of income and expense items results in a corresponding difference in federal income tax
expense. Changes in deferred income taxes are reflected as an item of income tax benefit or expense, rather than
recorded directly to surplus as regards policyholders, as required by SAP. Admittance testing may result in a
charge to unassigned surplus for non-admitted portions of deferred tax assets. Under GAAP reporting, a
valuation allowance may be recorded against the deferred tax asset and reflected as an expense.
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.
39
Our GAAP insurance ratios are presented in the following table for the periods indicated.
GAAP ratios:
Loss ratio
Expense ratio
Combined ratio
Share-Based Compensation
2020
Years Ended December 31,
2019
2018
52.5 %
34.6
87.1 %
64.6 %
31.0
95.6 %
62.1 %
31.6
93.7 %
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 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 December 31, 2020, there were 234,170 shares available for future grant. Grants outstanding under the Plans as of
December 31, 2020, were comprised of 138,514 restricted shares.
Grants made under the Incentive Plan during the years 2018 through 2020 were as follows.
Type of
Equity
Awarded
RS - Service
RS - Performance
RS
RS - Performance
RS - Service
RS - Performance
RS
RS - Performance
RS - Service
RS - Performance
RS
RS - Performance
RS
Effective Date
February 26, 2018
February 26, 2018
February 26, 2018
August 1, 2018
February 26, 2019
February 26, 2019
February 26, 2019
February 26, 2019
February 26, 2020
February 26, 2020
February 26, 2020
February 26, 2020
March 27, 2020
Number of
Awards
Granted
Fair
Value per
Share (1)
34,451
31,668
5,000
164
28,778
23,191
5,000
40,256
28,799
24,062
5,000
12,587
1,000
$
$
$
$
$
$
$
$
$
$
$
$
$
75.05
75.05
75.05
92.30
92.52
92.52
92.52
92.52
90.50
90.50
90.50
90.50
76.60
Vesting Terms
3 years, 30%-30%-40%
3 years, cliff vesting (3)
No vesting period (2)
No vesting period (4)
3 years, 30%-30%-40%
3 years, cliff vesting (3)
No vesting period (2)
No vesting period (4)
3 years, 30%-30%-40%
3 years, cliff vesting (3)
No vesting period (2)
No vesting period (4)
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 cash 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.
40
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 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 FAIR
Plan. The reinsurance market has seen from the various software modelers, increases in the estimate of damage from
hurricanes in the southern and northeast portions of the United States due to revised estimations of increased hurricane
activity and increases in the estimation of demand surge in the periods following a significant event. We continue to
manage and model our exposure and adjust our reinsurance programs as a result of the changes to the models. As of
January 1, 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. As a result of the changes to the models, our catastrophe reinsurance in 2020 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). Most of our
reinsurers have an A.M. Best rating of “A+” (Superior) or “A” (Excellent).
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 commercial automobile insurance in Massachusetts. We
also participate in the FAIR Plan in which premiums, expenses, losses and loss adjustment expenses on homeowners
business that cannot be placed in the voluntary market are shared by all insurers writing homeowners insurance in
Massachusetts. The FAIR Plan buys reinsurance to reduce their exposure to catastrophe losses. On July 1, 2020, the
FAIR Plan purchased $2,000,000 of catastrophe reinsurance for property losses with retention of $100,000.
We also had $129,766 due from CAR comprising of loss and loss adjustment expense reserves, unearned
premiums and reinsurance recoverables.
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-generally accepted accounting principles (“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 gains 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.
41
The following table shows certain of our selected financial results.
Results of Operations
Direct written premiums
Net written premiums
Net earned premiums
Net investment income
Earnings from partnership investments
Net realized gains on investments
Change in net unrealized gains on equity investments
Net impairment losses on investments
Credit loss expense
Finance and other service income
Total revenue
Loss and loss adjustment expenses
Underwriting, operating and related expenses
Interest expense
Total expenses
Income before income taxes
Income tax expense
Net income
Earnings per weighted average common share:
Basic
Diluted
Cash dividends paid per common share
Reconciliation of Net Income to Non-GAAP Operating Income:
Net income
Exclusions from net income:
Net realized gains on investments
Change in net unrealized gains on equity investments
Net impairment losses on investments
Credit loss expense
Income tax benefit (expense)
Non-GAAP Operating income
Net income per diluted share
Exclusions from net income:
Net realized gains on investments
Change in net unrealized gains on equity investments
Net impairment losses on investments
Credit loss expense
Income tax benefit (expense)
Non-GAAP Operating income per diluted share
Years Ended December 31,
2020
2019
2018
798,712
763,537
771,078
41,045
6,901
957
10,449
—
(1,054)
16,872
846,248
404,556
266,482
440
671,478
174,770
36,559
138,211
9.25
9.18
3.60
$
$
$
$
$
$
$
852,404
794,409
788,777
46,665
1,937
2,976
21,454
(889)
—
16,833
877,753
509,846
244,136
90
754,072
123,681
24,080
99,601
6.52
6.46
3.40
$
$
$
$
$
$
$
843,675
786,912
781,587
43,788
6,915
3,226
(16,324)
(228)
—
17,533
836,497
485,513
246,643
90
732,246
104,251
21,056
83,195
5.48
5.43
3.20
138,211
$
99,601
$
83,195
(957)
(10,449)
-
1,054
2,174
130,033
9.18
(0.06)
(0.69)
-
0.07
0.14
8.64
$
$
$
(2,976)
(21,454)
889
-
4,944
81,004
6.46
(0.19)
(1.40)
0.06
-
0.32
5.25
$
$
$
(3,226)
16,324
228
-
(2,798)
93,723
5.43
(0.21)
1.07
0.01
-
(0.18)
6.12
$
$
$
$
$
$
$
$
$
$
$
YEAR ENDED DECEMBER 31, 2020 COMPARED TO YEAR ENDED DECEMBER 31, 2019
Direct Written Premiums. Direct written premiums for the year ended December 31, 2020 decreased by
$53,692, or 6.3%, to $798,712 from $852,404 for the comparable 2019 period. The 2020 decrease reflects the Safety
Personal Auto Relief Credit, a 15% policyholder credit, representing $17,711 in total premium which was applied to
personal auto policies for the months of April, May and June as well as changes made by CAR to eligibility requirements
which impacted the number of commercial automobile 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.
42
Net Written Premiums. Net written premiums for the year ended December 31, 2020 decreased by $30,872, or
3.9%, to $763,537 from $794,409 for the comparable 2019 period. The 2020 decrease was primarily due to the factors
that decreased direct written premiums.
Net Earned Premiums. Net earned premiums for the year ended December 31, 2020 decreased by $17,699, or
2.2%, to $771,078 from $788,777 for the comparable 2019 period. The 2020 decrease was primarily due to the Safety
Personal Auto Relief Credit as discussed above.
The effect of reinsurance on net written and net earned premiums is presented in the following table.
Written Premiums
Direct
Assumed
Ceded
Net written premiums
Earned Premiums
Direct
Assumed
Ceded
Net earned premiums
Year Ended December 31,
2020
2019
$
$
$
$
798,712
26,316
(61,491)
763,537
815,981
29,365
(74,268)
771,078
$
$
$
$
852,404
32,391
(90,386)
794,409
845,102
32,853
(89,178)
788,777
Net Investment Income. Net investment income for the year ended December 31, 2020 decreased by $5,620, or
12.0%, to $41,045 from $46,665 for the comparable 2019 period. The decreases are a result of lower floating yields on
our bank loan portfolio, lower interest income on certain partnership investments and fixed maturity amortization
resulting from prepayment activity on certain residential mortgage-backed securities. Net effective annual yield on the
investment portfolio was 2.9% for the year ended December 31, 2020 compared to 3.4% for the year ended December
31, 2019. Our duration was 3.2 years at December 31, 2020, compared to 3.3 years at December 31, 2019.
Earnings from Partnership Investments. Earnings from partnership investments were $6,901 for the year ended
December 31, 2020 compared to $1,937 for the year ended December 31, 2019. The 2020 earnings reflects an increase in
investment appreciation and cash proceeds received as a return on capital. Timing and generation of these returns on
capital can vary based on the results and transactions of the underlying partnerships.
Net Realized Gains on Investments. Net realized gains on investments were $957 for the year ended
December 31, 2020 compared to $2,976 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, short term investments, equity securities, including interests
in mutual funds, and other invested assets were as follows:
43
As of December 31, 2020
Cost or
Amortized
Cost
Allowance for
Expected Credit
Losses
Gross Unrealized
Gains
Losses (3)
Estimated
Fair
Value
U.S. Treasury securities
Obligations of states and political subdivisions
Residential mortgage-backed securities (1)
Commercial mortgage-backed securities
Other asset-backed securities
Corporate and other securities
Subtotal, fixed maturity securities
Short term investments
Equity securities (2)
Other invested assets (4)
Totals
$
$
1,821
214,647
229,910
115,575
72,756
555,242
1,189,951
441
168,289
45,239
1,403,920
$
$
— $
—
—
—
—
(1,054)
(1,054)
—
—
—
(1,054) $
44
7,745
11,701
10,460
531
38,415
68,896
—
38,676
—
107,572
$
$
— $
(3)
(14)
—
(163)
(960)
(1,140)
—
(1,711)
—
(2,851) $
1,865
222,389
241,597
126,035
73,124
591,643
1,256,653
441
205,254
45,239
1,507,587
(1) Residential mortgage-backed securities consists 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 270 securities in an unrealized loss position at December 31, 2020.
(4) Other invested assets are accounted for under the equity method which approximates fair value.
The composition of our fixed income security portfolio by rating was as follows:
U.S. Treasury securities and obligations of U.S. Government agencies
Aaa/Aa
A
Baa
Ba
B
Caa/Ca
Not rated
Total
As of December 31, 2020
Estimated
Fair Value
Percent
$
$
256,683
327,775
260,048
220,171
68,135
93,824
5,067
24,950
1,256,653
20.4 %
26.1
20.7
17.5
5.4
7.5
0.4
2.0
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 December 31, 2020, our portfolio of fixed maturity investments was principally comprised 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 presents the length of time that they have been in
a continuous unrealized loss position of December 31, 2020.
44
Less than 12 Months
As of December 31, 2020
12 Months or More
Estimated
Fair Value
Unrealized Estimated Unrealized
Fair Value
Losses
Losses
Total
Estimated
Fair Value
Unrealized
Losses
U.S. Treasury securities
Obligations of states and political subdivisions
Residential mortgage-backed securities
Commercial mortgage-backed securities
Other asset-backed securities
Corporate and other securities
Subtotal, fixed maturity securities
Equity securities
Total temporarily impaired securities
$
$
— $
1,047
8,569
—
26,959
62,882
99,457
10,708
110,165
$
— $
3
14
—
84
863
964
986
1,950
$
— $
—
9
—
9,004
6,774
15,787
2,293
18,080
$
— $
—
—
—
79
97
176
725
901
$
— $
1,047
8,578
—
35,963
69,656
115,244
13,001
128,245
$
—
3
14
—
163
960
1,140
1,711
2,851
For the year ended December 31, 2020, the Company concluded that $1,054 of unrealized losses were due to
credit factors and were recorded as an allowance for expected credit losses and credit loss expense. The Company
concluded that outside of the securities that were recognized as credit impaired, the unrealized losses recorded on the
fixed maturity portfolio at December 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 year ended December 31, 2019, the company recognized $889 of OTTI losses which consisted entirely
of 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.
The majority of unrealized losses recorded on the investment portfolio at December 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. Given our current level of liquidity, the fact that we do not intend to sell
these securities, and that it is more likely than not that we will not be required to sell these securities prior to recovery of
the cost basis of these securities, these decreases in values are viewed as being temporary.
For information regarding fair value measurements of our investment portfolio, refer to Item 8—Financial
Statements and Supplementary Data, Note 16, Fair Value of Financial Instruments, of this Form 10-K.
Net Impairment Losses on Investments. Net impairment losses on investments was $889 for the year ended
December 31, 2019.
Credit Loss Expense. Credit loss expense on investments was $1,054 for the year ended December 31, 2020.
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 increased by $39, or 0.2%, to $16,872 for the year ended December 31, 2020 from $16,833 for the
comparable 2019 period.
Losses and Loss Adjustment Expenses. Losses and loss adjustment expenses incurred for the year ended
December 31, 2020 decreased by $105,290, or 20.7%, to $404,556 from $509,846 for the comparable 2019 period.
Our GAAP loss ratio for the years ended December 31, 2020 and 2019 were 52.5% and 64.6%, respectively.
Our GAAP loss ratio excluding loss adjustment expenses was 43.7% and 56.1% for the years ended December 31, 2020
45
and 2019, respectively. Total prior year favorable development included in the pre-tax results for the year ended
December 31, 2020 was $54,844, compared to $42,049, for the comparable 2019 period.
Underwriting, Operating and Related Expenses. Underwriting, operating and related expenses for the year
ended December 31, 2020 increased by $22,346, or 9.2%, to $266,482 from $244,136 for the comparable 2019 period.
Our GAAP expense ratio for the year ended December 31, 2020 increased to 34.6% from 31.0% for the comparable
2019 period. The 2020 increase is driven by an increase in contingent commission expense as well as costs associated
with various system modernization in our claims, billing and underwriting areas and a reduction 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 $440 and $90 for the years ended December 31, 2020 and 2019,
respectively. The 2020 increase is due to the interest associated with the borrowing from the FHLB as noted within Item
8 – Financial Statements and Supplementary Data, Note 10, Debt, of this Form 10-K. The credit facility commitment fee
included in interest expense was $75 for each of the years ended December 31, 2020 and 2019.
Income Tax Expense Our effective tax rates were 20.9% and 19.5% for the years ended December 31, 2020
and 2019, respectively. The effective rates for the years ended December 31, 2020 and 2019 were lower than the
statutory rates primarily due to the effects of tax-exempt investment income.
Net Income. Net income for the year ended December 31, 2020 was $138,211 compared to a net income of
$99,601 for the comparable 2019 period.
Non-GAAP Operating Income. Non-GAAP operating income as defined above was $130,033 for the year ended
December 31, 2020 compared to $81,004 for the year ended December 31, 2019.
The comparison of results for the year ended December 31, 2019 compared to the year ended December 31,
2018 can be found in the Company’s 2019 Annual Report on Form 10-K filed with the SEC on February 28, 2020.
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.
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 payment of dividends to Safety.
Net cash provided by operating activities was $109,460, $112,456, and $127,691 during the years ended
December 31, 2020, 2019, and 2018, 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. These positive
operating cash flows are expected to continue to meet our liquidity requirements.
Net cash used for investing activities was $35,524, $52,964, and $83,004 for the years ended December 31,
2020, 2019, and 2018, respectively, as purchases of fixed maturity and equity securities exceeded proceeds from the
sales, paydowns, calls and maturities of fixed maturity and equity securities.
Net cash used for financing activities was $64,574, $52,667, and $48,813 during the years ended December 31,
2020, 2019 and 2018, respectively. Net cash used for financing activities during the year ended December 31, 2020 is
comprised of dividend payments to shareholders and share buybacks, partially offset by the proceeds from a $30,000
borrowing from the FHLB-Boston on March 17, 2020. The borrowing is 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
46
prepaid in whole or in part by the Company in advance. Net cash used for financing activities during the years ended
December 31, 2019 and 2018 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 short-term investments. 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 8—Financial Statements and Supplementary
Data, Note 10, Debt, of this Form 10-K.
Recent Accounting Pronouncements
For information regarding Recent Accounting Pronouncements, please refer to Item 8—Financial Statements
and Supplementary Data, Note 2, Summary of Significant Accounting Policies, of this Form 10-K.
Regulatory Matters
Our insurance company’s 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. 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 Subsidiaries may not declare an “extraordinary dividend” (defined as any
dividend or distribution that, together with other distributions made within the preceding twelve months, exceeds the
limits established by Massachusetts statute) until thirty days after the Commissioner has received notice of the intended
dividend and has not objected. As historically administered by the Commissioner, this provision requires the
Commissioner’s prior approval of an extraordinary dividend. Under Massachusetts law, an insurer may pay cash
dividends only from its unassigned funds, also known as earned surplus, and the insurer’s remaining surplus must be
both reasonable in relation to its outstanding liabilities and adequate to its financial needs. At year-end 2020, the
statutory surplus of Safety Insurance was $754,066, and its net income for 2020 was $121,446. As a result, a maximum
of $121,446 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 $632,620 at December 31,
2020. During the twelve months ended December 31, 2020, Safety Insurance recorded dividends to Safety of $89,156.
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.
47
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 and 2019 were as follows:
Declaration
Date
February 15, 2019
May 1, 2019
July 31, 2019
October 31, 2019
February 14, 2020
May 6, 2020
August 5, 2020
November 4, 2020
Record
Date
March 1, 2019
June 3, 2019
September 3, 2019
December 2, 2019
March 2, 2020
June 1, 2020
September 1, 2020
December 1, 2020
Payment
Date
March 15, 2019
June 14, 2019
September 13, 2019
December 13, 2019
March 16, 2020
June 15, 2020
September 15, 2020
December 15, 2020
Dividend per
Common Share
Total
Dividends Paid
and Accrued
$
$
$
$
$
$
$
$
0.80
0.80
0.90
0.90
0.90
0.90
0.90
0.90
$
$
$
$
$
$
$
$
12,300
12,371
13,854
13,867
13,872
13,836
13,622
13,405
On February 16, 2021, our Board approved and declared a quarterly cash dividend on our common stock of
$0.90 per share to be paid on March 15, 2021 to shareholders of record on March 5, 2021. We plan to continue to declare
and pay quarterly cash dividends in 2021, 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 December 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. At December 31, 2020, the Company had purchased 2,831,168 shares of common stock at a cost
$123,834. As of December 31, 2019, the Company had purchased 2,279,570 shares 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.
Off-Balance Sheet Arrangements
We have no material obligations under a guarantee contract meeting the characteristics identified in
Accounting Standards Codification (“ASC”) 460, Guarantees. We have no material retained or contingent interests in
assets transferred to an unconsolidated entity. We have no material obligations, including contingent obligations, under
contracts that would be accounted for as derivative instruments. We have no obligations, including contingent
obligations, arising out of a variable interest in an unconsolidated entity held by, and material to, us, where such entity
provides financing, liquidity, market risk or credit risk support to, or engages in leasing, hedging or research and
development services with us. We have no direct investments in real estate and no holdings of mortgages secured by
commercial real estate. Accordingly, we have no material off-balance sheet arrangements.
Contractual Obligations
We have obligations to make future payments under contracts and credit-related financial instruments and
commitments. At December 31, 2020, certain long-term aggregate contractual obligations and credit-related
commitments are summarized as follows:
48
Loss and LAE reserves
Operating leases
Total contractual obligations
Within
One Year
278,115
4,953
283,068
$
$
$
$
Payments Due by Period
Two to Three
Years
Four to Five
Years
249,736
8,373
258,109
$
$
34,055
7,736
41,791
$
$
After
Five Years
5,676
11,572
17,248
$
$
Total
567,581
32,634
600,215
As of December 31, 2020, the Company had loss and LAE reserves of $567,581, unpaid reinsurance
recoverables of $106,311 and net loss and LAE reserves of $461,270. Our loss and LAE reserves are estimates as
described in more detail under Critical Accounting Policies and Estimates. The specific amounts and timing of
obligations related to case reserves, IBNR reserves and related LAE reserves are not set contractually, and the amounts
and timing of these obligations are unknown. Nonetheless, based upon our cumulative claims paid over the last ten
years, the Company estimates that its loss and LAE reserves will be paid in the period shown above. While management
believes that historical performance of loss payment patterns is a reasonable source for projecting future claims
payments, there is inherent uncertainty in this estimated projected settlement of loss and LAE reserves, and as a result
these estimates will differ, perhaps significantly, from actual future payments. Our operations typically generate
substantial positive cash flows from operations as most premiums are received in advance of the time when claim and
benefit payments are required. These positive operating cash flows are expected to continue to meet our liquidity
requirements, including any unexpected variations in the timing of claim settlements.
As part of the Company’s investment activity, we have committed $110,000 to investments in limited
partnerships. The Company has contributed $61,455 to these commitments as of December 31, 2020. As of
December 31, 2020, the remaining committed capital that could be called is $51,112, which includes potential recallable
capital distributions.
Loss and Loss Adjustment Expense Reserves.
Critical Accounting Policies and Estimates
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 unreported losses 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
49
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
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:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
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 $424,437 to $478,251 as of December 31, 2020
compared to a range of $450,927 to $504,753 as of December 31, 2019. 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 $461,270 as of
December 31, 2020 compared to $488,194 as of December 31, 2019.
The following tables present the point estimation of the recorded reserves and the range of estimations by line
of business for net loss and LAE reserves as of December 31, 2020 and December 31, 2019.
50
Line of Business
Private passenger automobile
Commercial automobile
Homeowners
All other
Total
Line of Business
Private passenger automobile
Commercial automobile
Homeowners
All other
Total
As of December 31, 2020
Low
Recorded
High
167,218
93,395
97,063
66,761
424,437
$
$
182,494
102,313
99,724
76,739
461,270
$
$
184,373
104,495
102,356
87,027
478,251
As of December 31, 2019
Low
Recorded
High
201,107
98,466
83,795
67,559
450,927
$
$
212,521
108,261
89,360
78,052
488,194
$
$
216,861
109,831
91,426
86,635
504,753
$
$
$
$
The following table presents our total net reserves and the corresponding case reserves and IBNR reserves for
each line of business as of December 31, 2020 and December 31, 2019.
Line of Business
Private passenger automobile
CAR assumed private passenger auto
Commercial automobile
CAR assumed commercial automobile
Homeowners
FAIR Plan assumed homeowners
All other
Total net reserves for losses and LAE
Line of Business
Private passenger automobile
CAR assumed private passenger auto
Commercial automobile
CAR assumed commercial automobile
Homeowners
FAIR Plan assumed homeowners
All other
Total net reserves for losses and LAE
As of December 31, 2020
Case
IBNR
Total
$
$
$
$
211,893
1
57,008
18,824
86,362
3,405
44,128
421,621
Case
257,448
1
58,303
19,556
74,665
3,622
46,943
460,538
$
$
$
$
(29,407)
7
11,559
14,923
3,371
6,586
32,610
39,649
IBNR
(44,934)
6
12,855
17,547
5,069
6,004
31,109
27,656
$
$
$
$
182,486
8
68,567
33,747
89,733
9,991
76,738
461,270
Total
212,514
7
71,158
37,103
79,734
9,626
78,052
488,194
At December 31, 2020 and 2019, our total IBNR reserves for our private passenger automobile line of business
were comprised of $(45,308) and $(66,422) related to estimated ultimate decreases in the case reserves, including
anticipated recoveries (i.e. salvage and subrogation), and $15,901 and $21,488 related to our estimation for not yet
reported losses, respectively.
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 44.2% of our total reserves for CAR assumed
commercial automobile business as of December 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 65.9% of our total reserves for FAIR Plan assumed homeowners at
December 31, 2020 due to similar reporting delays in the information we receive from FAIR Plan.
The following tables present 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 December 31, 2020 and 2019.
51
Line of Business
Private passenger automobile
CAR assumed private passenger automobile
Net private passenger automobile
Commercial automobile
CAR assumed commercial automobile
Net commercial automobile
Homeowners
FAIR Plan assumed homeowners
Net homeowners
All other
Total net reserves for losses and LAE
Line of Business
Private passenger automobile
CAR assumed private passenger automobile
Net private passenger automobile
Commercial automobile
CAR assumed commercial automobile
Net commercial automobile
Homeowners
FAIR Plan assumed homeowners
Net homeowners
All other
Total net reserves for losses and LAE
Retained
$
182,486
As of December 31, 2020
Assumed
Net
$
8
$
182,494
68,567
89,733
33,747
9,991
76,738
417,524
$
—
43,746
$
102,314
99,724
76,738
461,270
Retained
212,514
71,158
79,734
As of December 31, 2019
Assumed
Net
$
7
$
212,521
37,103
9,626
108,261
89,360
78,052
488,194
78,052
441,458
$
-
46,736
$
$
$
$
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 consist 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 take 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 estimate the effects of the actions of our competitors in order to establish our
Participation Ratio.
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 twelve months ended
52
December 31, 2020, a 1 percentage-point change in the loss and LAE ratio would result in a change in reserves of
$7,710. Each 1 percentage-point change in the loss and loss expense ratio would have had a $6,090 effect on net
income, or $0.40 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 twelve months ended December 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.
-1 Percent
Change in
Frequency
No
Change in
Frequency
+1 Percent
Change in
Frequency
Private passenger automobile retained loss and LAE reserves
-1 Percent Change in Severity
Estimated decrease in reserves
Estimated increase in net income
No Change in Severity
Estimated (decrease) increase in reserves
Estimated increase (decrease) in net income
+1 Percent Change in Severity
Estimated increase in reserves
Estimated decrease in net income
Commercial automobile retained loss and LAE reserves
-1 Percent Change in Severity
Estimated decrease in reserves
Estimated increase in net income
No Change in Severity
Estimated (decrease) increase in reserves
Estimated increase (decrease) in net income
+1 Percent Change in Severity
Estimated increase in reserves
Estimated decrease in net income
Homeowners retained loss and LAE reserves
-1 Percent Change in Severity
Estimated decrease in reserves
Estimated increase in net income
No Change in Severity
Estimated (decrease) increase in reserves
Estimated increase (decrease) in net income
+1 Percent Change in Severity
Estimated increase in reserves
Estimated decrease in net income
All other retained loss and LAE reserves
-1 Percent Change in Severity
Estimated decrease in reserves
Estimated increase in net income
No Change in Severity
Estimated (decrease) increase in reserves
Estimated increase (decrease) in net income
+1 Percent Change in Severity
Estimated increase in reserves
Estimated decrease in net income
$
(3,650) $
2,884
(1,825) $
1,442
(1,825)
1,442
—
—
(1,371)
1,083
(686)
542
—
—
(1,795)
1,418
(897)
709
—
—
(1,535)
1,213
(767)
606
—
—
—
—
1,825
(1,442)
(686)
542
—
—
686
(542)
(897)
709
—
—
897
(709)
(767)
606
—
—
767
(606)
—
—
1,825
(1,442)
3,650
(2,884)
—
—
686
(542)
1,371
(1,083)
—
—
897
(709)
1,795
(1,418)
—
—
767
(606)
1,535
(1,213)
53
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 year ended December 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.
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
Estimated increase (decrease) in net income
FAIR Plan assumed homeowners
Estimated (decrease) increase in reserves
Estimated increase (decrease) in net income
Reserve Development Summary
-1 Percent
Change in
Estimation
+1 Percent
Change in
Estimation
$
$
—
—
(337)
266
(100)
79
—
—
337
(266)
100
(79)
The changes we have recorded in our reserves in the past illustrate the uncertainty of estimating reserves. Our
prior year reserves decreased by $54,844, $42,049 and $56,488 during the years ended December 31, 2020, 2019, and
2018, respectively.
The following table presents a comparison of prior year development of our net reserves for losses and LAE for
the years ended December 31, 2020, 2019 and 2018, respectively. 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.
Accident Year
2010 & prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
All prior years
2020
Year Ended December 31,
2019
2018
$
$
(472)
(698)
(1,553)
(822)
(452)
(3,265)
(5,496)
(10,726)
(16,697)
(14,663)
(54,844)
$
$
(1,158)
(1,222)
(1,359)
(2,689)
(4,525)
(3,557)
(4,531)
(15,119)
(7,889)
—
(42,049)
$
$
(5,423)
(3,567)
(4,714)
(5,154)
(7,123)
(4,070)
(13,130)
(13,307)
—
—
(56,488)
At the end of each period, the reserves were re-estimated for all prior accident years. Our prior year reserves
decreased by $54,844, $42,049, and $56,488 for the years ended 2020, 2019, and 2018, respectively. The decreases in
prior year reserves in 2020 resulted from re-estimations of prior year’s ultimate loss and LAE liabilities and are primarily
composed of reductions of $26,902 in our retained automobile reserves and $21,717 in our retained other than auto and
homeowner’s reserves. The decreases in prior year reserves in 2019 resulted from re-estimations of prior year’s ultimate
loss and LAE liabilities and are primarily composed of reductions of $25,623 in our retained automobile reserves and
$14,182 in our retained other than auto and homeowner reserves. The decrease in prior year reserves during 2018 is
primarily composed of reductions of $36,266 in our retained automobile reserves and $18,947 in our retained
54
homeowners reserves. It is not appropriate to extrapolate future favorable or unfavorable development of reserves from
this past experience.
The following table presents information by line of business for prior year development of our net reserves for
losses and LAE for the year ended December 31, 2020.
Commercial
Automobile
$
Homeowners
$
Accident Year
2010 & prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
All prior years
Private Passenger
Automobile
$
$
(132)
(113)
31
6
(26)
(1,927)
(3,676)
(4,902)
(7,077)
(4,713)
(22,529)
(172)
(100)
(74)
23
(242)
90
(357)
(1,988)
(2,720)
(4,038)
(9,578)
$
$
(10)
2
(244)
(9)
(3)
(370)
(1,604)
(2,701)
(4,699)
(5,184)
(14,822)
All Other
Total
$
$
(158)
(487)
(1,266)
(842)
(181)
(1,058)
141
(1,135)
(2,201)
(728)
(7,915)
$
$
(472)
(698)
(1,553)
(822)
(452)
(3,265)
(5,496)
(10,726)
(16,697)
(14,663)
(54,844)
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 year ended December 31, 2020 that is, all our reserves except for business ceded or assumed
from CAR and other residual markets.
Accident Year
2010 & prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
All prior years
Retained
Private Passenger
Automobile
Retained
Commercial
Automobile
Retained
Homeowners
Retained
All Other
Total
$
$
(132) $
(113)
31
6
(26)
(1,927)
(3,676)
(4,902)
(7,077)
(4,713)
(22,529) $
(149) $
(1)
(2)
97
(173)
273
18
(1,054)
(1,752)
(1,630)
(4,373) $
(10) $
2
(244)
(9)
2
(260)
(1,482)
(2,642)
(4,492)
(4,667)
(13,802) $
(158) $
(487)
(1,266)
(842)
(181)
(1,058)
141
(1,135)
(2,201)
(728)
(7,915) $
(449)
(599)
(1,481)
(748)
(378)
(2,972)
(4,999)
(9,733)
(15,522)
(11,738)
(48,619)
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 year ended December 31, 2020.
Accident Year
2010 & prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
All prior years
CAR Assumed
Private Passenger
Automobile
CAR Assumed
Commercial
Automobile
FAIR Plan
Homeowners
Total
(23)
(99)
(72)
(74)
(69)
(183)
(375)
(934)
(968)
(2,408)
(5,205)
$
$
— $
—
—
—
(5)
(110)
(122)
(59)
(207)
(517)
(1,020)
$
(23)
(99)
(72)
(74)
(74)
(293)
(497)
(993)
(1,175)
(2,925)
(6,225)
$
$
— $
—
—
—
—
—
—
—
—
—
— $
55
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
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.
In estimating all our loss reserves, including CAR, we follow the guidance prescribed by ASC 944, Financial
Services-Insurance.
For further information, see “Results of Operations: Losses and Loss Adjustment Expenses.”
Investment Impairments
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. This
methodology ensures that we evaluate available evidence concerning any declines in a disciplined manner.
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, 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 further information, see “Results of Operations: Net Impairment Losses on Investments.”
Forward-looking statements might include one or more of the following, among others:
Forward-Looking Statements
(cid:120)
Projections of revenues, income, earnings per share, capital expenditures, dividends, capital structure
or other financial items;
(cid:120) Descriptions of plans or objectives of management for future operations, products or services;
(cid:120)
(cid:120)
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;
(cid:120)
(cid:120) Descriptions of assumptions underlying or relating to any of the foregoing; and
(cid:120)
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
56
verbs such as “will,” “would,” “should,” “could,” or “may.” All statements that address expectations or projections
about the future, including statements about the Company’s strategy for growth, product development, market position,
expenditures and financial results, are forward-looking statements.
Forward-looking statements are not guarantees of future performance. By their nature, forward-looking
statements are subject to risks and uncertainties. There are a number of factors, many of which are beyond our control,
that could cause actual future conditions, events, results or trends to differ significantly and/or materially from historical
results or those projected in the forward-looking statements. These factors include but are not limited to:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
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;
(cid:120) Our possible need for and availability of additional financing, and our dependence on strategic
(cid:120)
(cid:120)
(cid:120)
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 possibility that civil litigation and/or the Commissioner may require additional premium relief
payouts related to COVID-19;
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
(cid:120) Other risks and factors identified from time to time in our reports filed with the SEC. Refer to
Part I, Item 1A — Risk Factors.
Some other factors, such as market, operational, liquidity, interest rate, equity and other risks, are described
elsewhere in this Annual Report on Form 10-K. 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.
57
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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).
As of December 31, 2020
Estimated fair value
Estimated increase (decrease) in fair value
As of December 31, 2019
Estimated fair value
Estimated increase (decrease) in fair value
-100 Basis
Point Change
No Change
+100 Basis
Point Change
$
$
$
$
1,298,384
41,731
1,268,376
40,336
$
$
$
$
1,256,653
$
— $
1,216,947
(39,706)
1,228,040
$
— $
1,181,724
46,316
With respect to floating rate debt, we are exposed to the effects of changes in prevailing interest rates. At
December 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.
58
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
SAFETY INSURANCE GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements:
Report to Independent Registered Public Accounting Firm
Balance Sheets
Statements of Operations
Statements of Comprehensive Income
Statements of Changes in Shareholders’ Equity
Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
60
63
64
65
66
67
68
59
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Safety Insurance Group, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Safety Insurance Group, Inc. and its subsidiaries (the
"Company") as of December 31, 2020 and 2019, and the related consolidated statements of operations, of comprehensive
income, of changes in shareholders’ equity and of cash flows for each of the three years in the period ended December
31, 2020, including the related notes and financial statement schedules listed in the index appearing under Item 15
(collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control
over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in
the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the COSO.
Changes in Accounting Principles
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts
for equity investments in 2018.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting,
included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our
responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal
control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was
maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. Our audit of internal control over financial reporting included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing
such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.
60
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies
and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated
financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to
accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially
challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our
opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit
matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it
relates.
Valuation of Loss and Loss Adjustment Expense Reserves
As described in Notes 2 and 12 to the consolidated financial statements, the Company’s net liabilities for losses and loss
adjustment expenses include case basis estimates for open claims reported prior to year-end and estimates of unreported
claims and claim adjustment expenses, net of salvage and subrogation. The Company’s net loss and loss adjustment
expense reserve liability of approximately $461 million as of December 31, 2020 is calculated by management using
various actuarial techniques which consider historical data and estimate the impact of various loss development factors,
such as the Company’s historical loss experience and that of the industry, trends in claims frequency and severity, the
Company’s mix of business, the Company’s claims processing procedures, legislative enhancements, judicial decisions,
legal developments in imposition of damages, and changes and trends in general economic conditions, including the
effects of inflation. As disclosed by management, these actuarial techniques assume that past experience, adjusted for
the effects of current developments and anticipated trends, is an appropriate basis for predicting the Company’s ultimate
losses, total reserves and resulting incurred but not reported (IBNR) reserves.
The principal considerations for our determination that performing procedures relating to the valuation of loss and loss
adjustment expense reserves is a critical audit matter are the significant judgment by management when developing their
estimate, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and
evaluating audit evidence relating to the various actuarial techniques, which included significant assumptions related to
loss development factors. Also, the audit effort involved the use of professionals with specialized skill and knowledge to
assist in performing these procedures and evaluating the audit evidence obtained.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls
relating to the Company’s valuation of loss and loss adjustment expense reserves, including controls over the various
actuarial techniques and development of significant assumptions related to loss development factors. These procedures
also included, among others, the involvement of professionals with specialized skill and knowledge to assist in
61
developing an independent estimate of the loss and loss adjustment expense reserves, by line of business, on a test basis,
and comparison of this independent estimate to management’s actuarial determined reserves. Developing the
independent estimate involved testing the completeness and accuracy of data provided by management and evaluating
management’s assumptions related to loss development factors, and independently developing the loss development
factors. For certain lines of business, procedures also included, among others, testing the completeness and accuracy of
data provided by management and the involvement of professionals with specialized skill and knowledge to assist in
evaluating the appropriateness of management’s actuarial techniques and evaluating the reasonableness of assumptions
related to loss development factors used in those techniques.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 26, 2021
We have served as the Company’s auditor since 1983.
62
Safety Insurance Group, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except share data)
Assets
Investments:
Fixed maturities, available for sale, at fair value (amortized cost: $1,189,951 and $1,192,357, allowance for
expected credit losses of $1,054 at December 31, 2020)
Short term investments, at fair value (cost: $441 and $0)
Equity securities, at fair value (cost: $168,289 and $151,121)
Other invested assets
Total investments
Cash and cash equivalents
Accounts receivable, net of allowance for expected credit losses of $1,754 at December 31, 2020
Receivable for securities sold
Accrued investment income
Taxes recoverable
Receivable from reinsurers related to paid loss and loss adjustment expenses
Receivable from reinsurers related to unpaid loss and loss adjustment expenses
Ceded unearned premiums
Deferred policy acquisition costs
Equity and deposits in pools
Operating lease right-of-use-assets
Other assets
Total assets
Liabilities
Loss and loss adjustment expense reserves
Unearned premium reserves
Accounts payable and accrued liabilities
Payable for securities purchased
Payable to reinsurers
Deferred income taxes
Debt
Operating lease liabilities
Other liabilities
Total liabilities
Commitments and contingencies (Note 8)
Shareholders’ equity
Common stock: $0.01 par value; 30,000,000 shares authorized; 17,724,866 and 17,662,779 shares issued
Additional paid-in capital
Accumulated other comprehensive income, net of taxes
Retained earnings
Treasury stock, at cost: 2,831,168 and 2,279,570 shares
Total shareholders’ equity
Total liabilities and shareholders’ equity
December 31,
2020
December 31,
2019
$
$
$
$
1,256,653
441
205,254
45,239
1,507,587
53,769
179,147
1,311
8,045
279
13,432
106,311
22,406
74,962
30,429
31,000
25,595
2,054,273
567,581
421,901
79,486
7,144
8,236
17,611
30,000
31,000
6,635
1,169,594
178
209,779
53,527
745,029
(123,834)
884,679
2,054,273
$
$
$
$
1,228,040
—
177,637
37,278
1,442,955
44,407
193,369
1,784
8,404
1,003
11,319
122,372
35,182
74,287
29,791
33,998
23,798
2,022,669
610,566
442,219
75,016
6,377
12,911
5,717
—
33,998
27,459
1,214,263
177
202,321
28,190
661,553
(83,835)
808,406
2,022,669
The accompanying notes are an integral part of these financial statements.
63
Safety Insurance Group, Inc. and Subsidiaries
Consolidated Statements of Operations
(Dollars in thousands, except per share data)
Net earned premiums
Net investment income
Earnings from partnership investments
Net realized gains on investments
Change in unrealized gains on equity investments
Net impairment losses on investments (a)
Credit loss expense
Finance and other service income
Total revenue
Losses and loss adjustment expenses
Underwriting, operating and related expenses
Interest expense
Total expenses
Income before income taxes
Income tax expense
Net income
Earnings per weighted average common share:
Basic
Diluted
Cash dividends paid per common share
2020
Years Ended December 31,
2019
2018
$
$
$
$
$
771,078
41,045
6,901
957
10,449
—
(1,054)
16,872
846,248
404,556
266,482
440
671,478
174,770
36,559
138,211
9.25
9.18
3.60
$
$
$
$
$
788,777
46,665
1,937
2,976
21,454
(889)
—
16,833
877,753
509,846
244,136
90
754,072
123,681
24,080
99,601
6.52
6.46
3.40
$
$
$
$
$
781,587
43,788
6,915
3,226
(16,324)
(228)
—
17,533
836,497
485,513
246,643
90
732,246
104,251
21,056
83,195
5.48
5.43
3.20
Number of shares used in computing earnings per share:
Basic
Diluted
15,002,755
15,119,027
15,201,132
15,337,807
15,080,269
15,229,898
(a) No portion of the other-than-temporary impairments recognized in the period indicated were included in Other Comprehensive
Income.
The accompanying notes are an integral part of these financial statements.
64
Safety Insurance Group, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(Dollars in thousands)
Net income
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) during the period, net of income tax expense
(benefit) of $6,936, $10,964, and ($5,387).
Reclassification adjustment for net realized gains on investments included in net
income, net of income tax expense of ($201), ($625), and ($678).
Other comprehensive income (loss), net of tax:
Years Ended December 31,
2020
2019
2018
$
138,211
$
99,601
$
83,195
26,093
(756)
25,337
41,247
(2,351)
38,896
(20,267)
(2,549)
(22,816)
Comprehensive income
$
163,548
$
138,497
$
60,379
The accompanying notes are an integral part of these financial statements.
65
Safety Insurance Group, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity
(Dollars in thousands)
Accumulated
Other
Balance at December 31, 2017
Cumulative effect of adoption of updated accounting
guidance for equity financial instruments at January 1, 2018.
Reclassification of certain tax effects from accumulated other
comprehensive (loss) income at January 1, 2018.
Net income
Unrealized losses on securities available for sale, net of
deferred federal income taxes
Restricted share awards issued
Recognition of employee share-based compensation
Dividends paid and accrued
Balance at December 31, 2018
Cumulative effect of adoption of updated accounting
guidance for callable debt securities at January 1, 2019, net
of taxes
Net income
Unrealized gains on securities available for sale, net of
deferred federal income taxes
Restricted share awards issued
Recognition of employee share-based compensation
Dividends paid and accrued
Balance at December 31, 2019
Net income
Unrealized gains on securities available for sale, net of
deferred federal income taxes
Restricted share awards issued
Recognition of employee share-based compensation
Dividends paid and accrued
Acquisition of treasury stock
Balance at December 31, 2020
Common
Stock
175
$
—
—
—
1
—
—
176
—
—
1
—
—
177
—
—
1
—
—
Additional Comprehensive
Income (Loss),
Net of Taxes
24,269
Paid-in
Capital
189,714
$
$
Retained
Earnings
$
570,693
$
Treasury
Stock
(83,835) $
Total
Shareholders’
Equity
—
—
—
375
6,203
—
196,292
(16,895)
4,736
(22,816)
—
—
—
(10,706)
—
—
—
462
5,567
—
202,321
—
—
528
6,930
—
38,896
—
—
—
28,190
—
25,337
—
—
—
16,895
(4,736)
83,195
—
—
—
(49,330)
616,717
(2,373)
99,601
—
—
—
(52,392)
661,553
138,211
—
—
—
(54,735)
—
—
—
—
—
—
(83,835)
—
—
—
—
—
(83,835)
—
—
—
—
—
(39,999)
$ (123,834) $
701,016
—
—
83,195
(22,816)
376
6,203
(49,330)
718,644
(2,373)
99,601
38,896
463
5,567
(52,392)
808,406
138,211
25,337
529
6,930
(54,735)
(39,999)
884,679
$
178
$
209,779
$
53,527
$
745,029
The accompanying notes are an integral part of these financial statements.
66
Safety Insurance Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
2020
Year Ended December 31,
2019
2018
$
138,211
$
99,601
$
83,195
Investment amortization, net
Fixed Asset depreciation, net
Stock based compensation
Provision (credit) for deferred income taxes
Net realized gains on investments
Net impairment losses on investments
Credit loss expense
Earnings from partnership investments
Change in net unrealized gains on equity investments
Changes in assets and liabilities:
Accounts receivable
Accrued investment income
Receivable from reinsurers
Ceded unearned premiums
Deferred policy acquisition costs
Taxes recoverable
Other assets
Loss and loss adjustment expense reserves
Unearned premium reserves
Taxes payable
Accounts payable and accrued liabilities
Payable to reinsurers
Other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Fixed maturities purchased
Short term investments purchased
Equity securities purchased
Other invested assets purchased
Proceeds from sales and paydowns of fixed maturities
Proceeds from maturities, redemptions, and calls of fixed maturities
Proceed from sales of equity securities
Proceeds from other invested assets redeemed
Fixed assets purchased
Net cash used for investing activities
Cash flows from financing activities:
Proceeds from FHLB loan
Dividends paid to shareholders
Acquisition of treasury stock
Net cash used for financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of period
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Federal and state income taxes
Interest
6,541
7,527
7,459
5,159
(957)
—
1,054
(1,932)
(10,449)
14,222
359
13,948
12,776
(675)
724
(15)
(42,985)
(20,318)
—
4,310
(4,675)
(20,824)
109,460
(217,269)
(441)
(49,326)
(11,868)
126,555
86,390
34,542
5,839
(9,946)
(35,524)
30,000
(54,575)
(39,999)
(64,574)
9,362
44,407
53,769
31,080
388
$
$
$
4,922
5,485
6,030
4,757
(2,976)
889
—
(904)
(21,454)
(3,307)
16
(11,602)
(1,208)
(932)
(1,003)
(1,864)
25,847
6,839
(6,090)
3,395
691
5,324
112,456
(219,875)
—
(28,586)
(14,794)
135,119
58,676
23,966
2,124
(9,594)
(52,964)
—
(52,667)
—
(52,667)
6,825
37,582
44,407
26,780
75
$
$
$
5,273
5,467
6,579
(5,600)
(3,226)
228
—
(650)
16,324
587
456
(14,228)
(1,799)
(1,153)
908
2,565
10,665
7,123
6,090
10,678
(1,581)
(210)
127,691
(304,654)
—
(66,832)
(6,648)
217,221
63,628
18,654
6,810
(11,183)
(83,004)
—
(48,813)
—
(48,813)
(4,126)
41,708
37,582
20,115
75
$
$
$
The accompanying notes are an integral part of these financial statements.
67
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 consolidated financial statements include Safety Insurance
Group, Inc. and its subsidiaries (the “Company”). The subsidiaries consist of Safety Insurance Company, Safety
Indemnity Insurance Company, Safety Property and Casualty Insurance Company, Safety Northeast Insurance Company,
Safety Asset Management Corporation (“SAMC”), and Safety Management Corporation, which is SAMC’s holding
company. All intercompany transactions have been eliminated.
The Company was incorporated on June 25, 2001 in the State of Delaware. On October 16, 2001, the Company
acquired all of the issued and outstanding common stock of Thomas Black Corporation (“TBC”) and its property and
casualty subsidiaries. TBC subsequently merged with and into Safety Insurance Group, Inc. with Safety Insurance
Group, Inc. being the corporation surviving the merger.
The Company is a leading provider of property and casualty insurance focused primarily on the Massachusetts
market. The Company’s principal product line is private passenger automobile insurance, which accounted for 54.9% of
its direct written premiums in 2020. The Company operates through its insurance company subsidiaries, Safety Insurance
Company, Safety Indemnity Insurance Company, Safety Property and Casualty Insurance Company, and Safety
Northeast Insurance Company (together referred to as the “Insurance Subsidiaries”).
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.
Summary of Significant Accounting Policies
Investments
Investments in fixed maturities, which include taxable and non-taxable bonds and redeemable preferred stocks,
are reported at fair value. Fair values for fixed maturity securities are based on estimates obtained from independent
pricing services. Unrealized gains or losses on fixed maturity securities reported at fair value are excluded from earnings
and reported in a separate component of shareholder’s equity known as “accumulated other comprenehsive income., net
of taxes” until realized. 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
accumulated 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. See Note 3 for further details of the Company’s
accounting for impairments of available-for-sale investments.
Short-term investments, which consist of securities with original maturities greater than three months but less
than one year, are reported at fair value.
Investments in equity securities, which include interests in common stocks, mutual funds and a real estate
investment trust (“REIT”), are reported at fair value. Fair values for equity securities are derived from external market
quotations, with the exception of the REIT whose fair value was determined using the trust’s net asset value obtained
from its audited financial statements. Changes in unrealized gains or losses on equity securities are recognized in
earnings.
68
Other invested assets consist of investments in limited partnerships. The partnership interest is accounted for
using the equity method of accounting and recorded in earnings from partnership investments. The carrying value of
these investments are written down, or impaired, to fair value when a decline in value is considered to be
other-than-temporary. In applying the equity method (including assessment for other-than-temporary impairment), the
Company uses financial information provided by the investee, generally on a three month lag.
Realized gains or losses on the sale or maturity of investments are determined based on the specific cost
identification method.
Investment income is recognized on an accrual basis of accounting. Bonds not backed by other loans are
amortized using the interest method. Loan-backed bonds and structured securities are amortized using the interest
method and significant changes in estimated cash flows from the original purchase assumptions are accounted for using
the retrospective method.
Cash and Cash Equivalents
Cash and cash equivalents includes money market accounts and United States (“U.S.”) Treasury bills with
original maturities of three months or less from the date of purchase. U.S. Treasury bills are stated at amortized cost,
which approximates fair value.
Accounts Receivable
Amounts included in accounts receivable represent premiums as well as finance charges, the majority of which
are billed on a monthly installment basis. Accounts receivable are stated net of allowances for doubtful accounts. At
December 31, 2020 and 2019, these allowances were $1,754 and $578, respectively. Uncollected premium balances over
ninety days past due are written off.
Deferred Policy Acquisition Costs
Amounts that vary with and are primarily related to the successful acquisition of a new or renewal insurance
contract, principally commissions and premium taxes, are deferred and amortized ratably over the effective period of the
policy. All other acquisition expenses are expensed as incurred. Deferred policy acquisition costs are reviewed to
determine if they are recoverable from future income, and if not, are charged to expense. Future investment income
attributable to related premiums is not taken into account in measuring the recoverability of the carrying value of this
asset. Amortization of acquisition costs in the amount of $146,955, $147,945 and $146,601 were charged to
underwriting, operating and other expenses for the years ended 2020, 2019 and 2018, respectively.
Equity and Deposits in Pools
Equity and deposits in pools represents the net receivable amounts from the residual market mechanisms,
Commonwealth Automobile Reinsurers (“CAR”) for automobile and Massachusetts Property Insurance Underwriting
Association (“FAIR Plan”) for homeowners insurance in Massachusetts. See Note 11 for a discussion of the Company’s
accounting for amounts assumed from residual markets.
Equipment and Leasehold Improvements
Property, equipment, leasehold improvements, and software which are included in other assets are carried at
cost less accumulated depreciation. Depreciation is provided using the straight- line or accelerated method over the
estimated useful lives of the related assets, which range from 3 to 10 years. Amortization of leasehold improvements is
provided using the straight-line method over the term of the lease. The costs of computer software developed or obtained
for internal use are capitalized and amortized over the estimated life of the business system, beginning when the software
is ready for its intended use. Maintenance and repairs are charged to expense as incurred.
69
Losses and Loss Adjustment Expenses
Liabilities for losses and loss adjustment expenses (“LAE”) include case basis estimates for open claims
reported prior to year-end and estimates of unreported claims and claim adjustment expenses, net of salvage and
subrogation. The estimates are continually reviewed and modified to reflect current conditions, and any resulting
adjustments are reflected in current operating results. Adjustments for anticipated salvage and subrogation are recorded
on incurred and reported and incurred but not reported losses.
The Company determines its loss and LAE reserves estimate based upon the analysis of our actuaries. A
reasonable estimate is derived by selecting a point estimate within a range of indications as calculated by our actuaries
using generally accepted actuarial techniques. The key assumption in most actuarial analysis is that past patterns of
frequency and severity will repeat in the future, unless a significant change in the factors described above takes place.
Our key factors and resulting assumptions are the ultimate frequency and severity of claims, based upon the most recent
ten years of claims reported to the Company, and the data reported to us to calculate our share of the residual market.
For each accident year and each coverage within a line of business our actuaries calculate the ultimate losses incurred.
Premiums and Unearned Premiums
Premiums are earned over the terms of the respective policies, which are generally one year. Unearned
premiums represent the portion of premiums written applicable to the unexpired terms of the policies.
Ceded premiums are charged to income over the terms of the respective policies and the applicable term of the
reinsurance contracts with third-party reinsurers. Ceded unearned premiums represent the unexpired portion of premiums
ceded to CAR and other reinsurers.
Premiums received in advance of the policy effective date are recorded as a liability and not recognized as
income until earned. Such amounts are included in accounts payable and accrued liabilities and totaled $10,441 and
$14,628 at December 31, 2020 and 2019, respectively.
Reinsurance
Liabilities for unearned premiums and unpaid losses are stated before deductions for ceded reinsurance. The
ceded amounts are carried as receivables. Earned premiums are stated net of deductions for ceded reinsurance.
The Company, as primary insurer, will be required to pay losses in their entirety in the event that the reinsurers
are unable to discharge their obligations under the reinsurance agreements.
Advertising Costs
Advertising costs are charged to expense when they are incurred. Total advertising costs were $2,311, $2,182
and $2,500 for the years ended December 31, 2020, 2019, and 2018, respectively.
Finance and Other Service Income
Finance and other service income primarily include revenues from premium installment charges, which are
recognized when earned.
Income Taxes
The Company and its subsidiaries file a consolidated U.S. federal income tax return. The method of allocation
among members of the consolidated group is subject to a written agreement approved by the Board of Directors (the
“Board”). The consolidated tax liability is allocated on the basis of the members’ proportionate contribution to
consolidated taxable income.
70
Deferred income taxes are generally recognized when assets and liabilities have different values for financial
statement and tax reporting purposes, and for other temporary taxable and deductible differences as defined by
Accounting Standards Codification (“ASC”) 740, Income Taxes. A valuation allowance is established where
management has assessed that it is more likely than not that the Company will not be able to utilize the full deferred tax
asset.
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.
Earnings attributable to common shareholders - basic and diluted:
Net income from continuing operations
Allocation of income for participating shares
Net income from continuing operations attributed to common shareholders
Earnings per share denominator - basis and diluted
Total weighted average common shares outstanding, including participating shares
Less: weighted average participating shares
Basic earnings per share denominator
Common equivalent shares- non-vested performance stock grants
Diluted earnings per share denominator
Basic earnings per share
Diluted earnings per share
Undistributed earnings attributable to common shareholders - basic and diluted:
Net income from continuing operations attributable to common shareholders -Basic
Dividends declared
Undistributed earnings
Net income from continuing operations attributable to common shareholders -Diluted
Dividends declared
Undistributed earnings
Years Ended December 31,
2019
2020
2018
138,211
636
138,847
$
$
99,601
(523)
99,078
$
$
15,071,955
(69,200)
15,002,755
116,272
15,119,027
15,281,363
(80,231)
15,201,132
136,675
15,337,807
83,195
(496)
82,699
15,170,754
(90,485)
15,080,269
149,629
15,229,898
9.25
9.18
9.25
(3.60)
5.65
9.18
(3.60)
5.58
$
$
$
$
$
$
6.52
6.46
6.52
(3.40)
3.12
6.46
(3.40)
3.06
$
$
$
$
$
$
5.48
5.43
5.48
(3.20)
2.28
5.43
(3.20)
2.23
$
$
$
$
$
$
$
$
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 non-vested performance stock grants for the years ended December 31, 2020
and 2019.
Share-Based Compensation
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).
See Note 7 for further information regarding share-based compensation.
71
Use of Estimates
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 and disclosure of contingent assets and liabilities at
the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
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 and while continuing to require disclosure of all material information. The amended
rules generally were effective on May 2, 2019 and reduced disclosures but some provisions added new requirements. On
August 26, 2020, the SEC adopted additional amendments to Regulation S-K to modernize certain disclosure
requirements relating to the description of business, legal proceedings and risk factors which are required to be disclosed
in the Form 10-K. The amended rules are effective for filings on or after November 9, 2020. The adoption of the new
rules did not and will 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 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 15 – Fair Value of Financial Instruments.
In February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards
Update (“ASU”) No. 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of
Certain Tax Effects from Accumulated Other Comprehensive Income. The ASU permits a reclassification from
accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the newly enacted
federal corporate income tax rate as a result of the 2017 Tax Cuts and Jobs Act (“TCJA”). The amount of the
reclassification is the difference between the historical corporate income tax rate of thirty-five percent and the newly
enacted twenty-one percent corporate income tax rate. The Company adopted the updated guidance effective January 1,
2018 and elected to reclassify the income tax effects of the TCJA from accumulated other comprehensive income
(“AOCI”) to retained earnings at the beginning of the period of adoption. This reclassification resulted in a decrease of
$4,736 in retained earnings as of January 1, 2018 and an increase in AOCI by the same amount.
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 retrospective
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
72
losses related to its available-for-sale (“AFS”) debt securities of $2,510. 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. All periods prior to the application date
presented in the financial statements will not change and the guidance in ASC 840, Leases, will apply. There was no
impact on retained earnings or other components of equity in the Consolidated Balance Sheets as of December 31, 2020
and December 31, 2019.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10), Recognition
and Measurement of Financial Assets and Financial Liabilities. The amendments in this ASC address certain aspects of
recognition, measurement, presentation and disclosure of financial instruments. ASU 2016-01: (1) requires equity
investments (except those accounted for under the equity method or those that result in the consolidation of the investee)
to be measured at fair value with changes in the fair value recognized in net income; (2) simplifies the impairment
assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to
identify impairment; (3) requires the use of the exit price notion when measuring the fair value of financial instruments
for disclosure purposes; and (4) requires separate presentation of financial assets and financial liabilities by measurement
category and form of financial asset on the balance sheet or the notes to the financial statements. The Company adopted
the updated guidance effective January 1, 2018 which resulted in the recognition of $16,895 of net after-tax unrealized
gains on equity investments as a cumulative effect adjustment that increased retained earnings as of January 1, 2018 and
decreased AOCI by the same amount.
In May 2014, the FASB issued as final, ASU 2014-09, Revenue from Contracts with Customers (Topic 606),
which supersedes virtually all existing revenue recognition guidance under GAAP. The update's core principle is that an
entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The update
was effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. ASU 2014-09
allows for the use of either the retrospective or modified retrospective approach of adoption. The Company adopted the
updated guidance effective January 1, 2018 using the modified retrospective approach. The adoption of ASU 2014-09
did not have a material impact on the Company’s financial position, results of operations, cash flows, or disclosures.
Segments
The Company comprises one business segment: property and casualty insurance operations. Management
organizes the business around private passenger automobile insurance in Massachusetts sold exclusively through
independent agents and offers other personal and commercial insurance as complementary products. In accordance with
ASC 280, Segment Reporting, the financial information of the segment is presented consistent with the way results are
regularly evaluated by the chief operating decision maker in deciding how to allocate resources and in assessing
performance.
73
3.
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.
U.S. Treasury securities
Obligations of states and political
subdivisions
Residential mortgage-backed securities (1)
Commercial mortgage-backed securities
Other asset-backed securities
Corporate and other securities
Subtotal, fixed maturity securities
Short term investments
Equity securities (2)
Other invested assets (4)
Totals
As of December 31, 2020
Cost or
Amortized
Cost
Allowance for
Expected Credit
Losses
Gross Unrealized
Gains
Losses (3)
Estimated
Fair
Value
$
1,821
$
— $
44
$
— $
1,865
214,647
229,910
115,575
72,756
555,242
1,189,951
441
168,289
45,239
1,403,920
$
—
—
—
—
(1,054)
(1,054)
—
—
—
(1,054)
$
7,745
11,701
10,460
531
38,415
68,896
—
38,676
—
107,572
$
(3)
(14)
—
(163)
(960)
(1,140)
—
(1,711)
—
(2,851)
$
222,389
241,597
126,035
73,124
591,643
1,256,653
441
205,254
45,239
1,507,587
$
Cost or
Amortized
Cost
As of December 31, 2019
Gross Unrealized
Gains
Losses (3)
U.S. Treasury securities
Obligations of states and political subdivisions
Residential mortgage-backed securities (1)
Commercial mortgage-backed securities
Other asset-backed securities
Corporate and other securities
Subtotal, fixed maturity securities
Equity securities (2)
Other invested assets (4)
Totals
$
$
1,504
241,597
301,503
106,902
36,068
504,783
1,192,357
151,121
37,278
1,380,756
$
$
8
9,799
6,608
3,233
218
18,455
38,321
27,879
—
66,200
$
$
— $
—
(909)
(397)
(64)
(1,268)
(2,638)
(1,363)
—
(4,001)
$
Estimated
Fair
Value
1,512
251,396
307,202
109,738
36,222
521,970
1,228,040
177,637
37,278
1,442,955
(1)
(2)
(3)
(4)
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).
Equity securities include common stock, preferred stock, mutual funds and interests in mutual funds held to fund the Company’s executive
deferred compensation plan.
The Company’s investment portfolio included 270 and 229 securities in an unrealized loss position at December 31, 2020 and
December 31, 2019, respectively.
Other invested assets are accounted for under the equity method which approximates 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.
74
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years through twenty years
Due after twenty years
Asset-backed securities
Totals
As of December 31, 2020
Amortized
Cost
Estimated
Fair Value
107,247
258,167
329,045
75,585
1,666
418,241
1,189,951
$
$
108,572
271,140
353,369
80,657
2,159
440,756
1,256,653
$
$
The gross realized gains and losses on sales of investments were as follows for the periods indicated.
Gross realized gains
Fixed maturity securities
Equity securities
Gross realized losses
Fixed maturity securities
Equity securities
Net realized gains on investments
2020
Years Ended December 31,
2019
2018
$
$
1,645
6,864
(2,166)
(5,386)
957
$
$
1,294
4,536
(1,805)
(1,049)
2,976
$
$
1,022
5,129
(1,878)
(1,047)
3,226
In the normal course of business, the Company enters into transactions involving various types of financial
instruments, including investments in fixed maturities and equity securities. Investment transactions have credit exposure
to the extent that a counter party may default on an obligation to the Company. Credit risk is a consequence of carrying,
trading and investing in securities. To manage credit risk, the Company focuses on higher quality fixed income
securities, reviews the credit strength of all companies in which it invests, limits its exposure in any one investment and
monitors the portfolio quality, taking into account credit ratings assigned by recognized statistical rating organizations.
The following tables as of December 31, 2020 and 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.
Less than 12 Months
12 Months or More
Total
As of December 31, 2020
Estimated
Fair Value
Unrealized Estimated Unrealized
Fair Value
Losses
Losses
Estimated
Fair Value
Unrealized
Losses
U.S. Treasury securities
Obligations of states and political subdivisions
Residential mortgage-backed securities
Commercial mortgage-backed securities
Other asset-backed securities
Corporate and other securities
Subtotal, fixed maturity securities
Equity securities
Total temporarily impaired securities
$
$
— $
1,047
8,569
—
26,959
62,882
99,457
10,708
110,165
$
— $
3
14
—
84
863
964
986
1,950
$
— $
—
9
—
9,004
6,774
15,787
2,293
18,080
$
— $
—
—
—
79
97
176
725
901
$
— $
1,047
8,578
—
35,963
69,656
115,244
13,001
128,245
$
—
3
14
—
163
960
1,140
1,711
2,851
75
Less than 12 Months
As of December 31, 2019
12 Months or More
Estimated
Fair Value
Unrealized Estimated Unrealized
Fair Value
Losses
Losses
Total
Estimated
Fair Value
Unrealized
Losses
U.S. Treasury securities
Obligations of states and political subdivisions
Residential mortgage-backed securities
Commercial mortgage-backed securities
Other asset-backed securities
Corporate and other securities
Subtotal, fixed maturity securities
Equity securities
Total temporarily impaired securities
$
$
— $
—
61,933
36,398
21,281
26,386
145,998
8,849
154,847
$
— $
—
409
397
64
481
1,351
391
1,742
$
— $
—
31,655
866
462
13,718
46,701
14,143
60,844
$
— $
—
500
—
—
787
1,287
972
2,259
$
— $
—
93,588
37,264
21,743
40,104
192,699
22,992
215,691
$
—
—
909
397
64
1,268
2,638
1,363
4,001
At December 31, 2020, U.S. Government residential mortgage backed securities with a fair value of $37,467
are pledged as collateral for a borrowing with the Federal Home Loan Bank of Boston (“FHLB-Boston”) as described in
Note 10 – Debt. These securities are included in fixed maturity securities on the Company’s Consolidated Balance
Sheets.
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, 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.
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.
For the year ended December 31, 2020, the Company concluded that $1,054 of unrealized losses were due to
credit factors and were recorded as an allowance for expected credit losses and credit loss expense. The Company
concluded that outside of the securities that were recognized as credit impaired, the unrealized losses recorded on the
fixed maturity portfolio at December 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
76
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 year ended December 31, 2019, the company recognized $889 of other-than-temporarily-impairmnte
(“OTTI”) losses which consisted entirely of credit 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 tables represent a reconciliation of the beginning and ending balances of the allowance for expected
credit losses on fixed maturities classified as available for sale.
Balance January 1, 2020
Credit losses on securities with no previously recorded credit losses
Net increases (decreases) in allowance on previously impaired securities
Reduction due to sales
Writeoffs charged against allowance
Recoveries of amounts previously written off
Balance December 31, 2020
$
$
Net Investment Income
Year Ended December 31, 2020
Corporate and other
securities
—
1,054
—
—
—
—
1,054
The components of net investment income were as follows for the periods indicated.
Interest on fixed maturity securities
Dividends on equity securities
Equity in earnings of other invested assets
Interest on other assets
Total Investment Income
Investment expenses
Net investment income
Years Ended December 31,
2020
2019
2018
37,727
5,044
1,378
27
44,176
3,131
41,045
$
$
42,892
5,268
1,552
32
49,744
3,079
46,665
$
$
40,988
4,500
1,182
62
46,732
2,944
43,788
$
$
4.
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 3 – 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.
77
The following tables present the balances of premiums receivable, net of the allowance for expected credit
losses, at December 31, 2020 and January 1, 2020, and changes in the allowance for expected credit losses for the year
ended December 31, 2020.
Balance, beginning of period
Current period change for expected credit losses
Writeoffs of uncollectable accounts receivable
Balance, end of period
At and For the
Year Ended December 31, 2020
Accounts Receivable Net of
Allowance for Expected
Credit Losses
Allowance for Expected
Credit Losses
$
$
193,369
179,147
$
$
578
3,294
(2,118)
1,754
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 recoverables net of an allowance for estimated uncollectable reinsurance. A probability-of-default
methodology which reflects current and forecasted economic conditions is used to estimate the amount of uncollectible
reinsurance due to credit-related factors and the estimate is reported in an allowance for estimated uncollectible
reinsurance. Amounts deemed to be uncollectible, including amounts due from known insolvent reinsurers, are written
off against the allowance. Changes in the allowance, as well as any subsequent collections of amounts previously written
off, are reported as part of 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 98%
of the total reinsurance recoverable on paid and unpaid losses at December 31, 2020. The remaining 2% 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 December 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 December 31, 2020.
5.
Equipment and Leasehold Improvements
The carrying value of equipment and leasehold improvements by classification was as follows for the periods
indicated.
Software
Computer equipment
Leasehold improvements
Other equipment
Furniture and fixtures
Total cost
Less accumulated depreciation and amortization
Equipment and leasehold improvements, net
As of December 31,
2020
2019
$
$
50,988
13,734
8,264
3,132
4,286
80,404
58,293
22,111
$
$
42,516
12,412
8,264
3,132
4,134
70,458
50,447
20,011
Depreciation and amortization expense for the years ended December 31, 2020, 2019, and 2018 was $7,526,
$5,166, and $5,464, respectively.
78
6.
Employee Benefit Plan
The Company sponsors the Safety Insurance Company 401(k) qualified defined contribution retirement plan
(the “Retirement Plan”). The Retirement Plan is available to all eligible employees of the Company. An employee must
be 21 years of age to be eligible to participate in the Retirement Plan and is allowed to contribute on a pre-tax basis up to
the maximum allowed under federal law. The Retirement Plan is administered by the Company and is subject to the
provisions of the Employee Retirement Income Security Act of 1974. At the close of each Retirement Plan year, the
Company makes a matching contribution equal to 100% of the amount each participant contributed during the plan year
from their total pay, up to a maximum amount of 8% of the participant’s base salary, to those participants who have
contributed to the Retirement Plan and were employed on the last day of the Retirement Plan year. Compensation
expense related to the Retirement Plan was $3,388, $3,365, and $3,302 for the years ended December 31, 2020, 2019,
and 2018, respectively.
7.
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 Board of Directors and the Compensation Committee intend to issue
awards under the 2018 Plan in the future.
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 December 31, 2020, there were 234,170 shares available for future 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 equal to 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
79
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.
The following table summarizes restricted stock activity under the Incentive Plan assuming a target payout for
the performance-based shares.
2020
Shares
Under
Restriction
78,202
34,799
(43,757)
(2,694)
66,550
Weighted
Average
Fair Value
79.09
$
90.10
78.10
87.70
85.16
$
Years Ended December 31,
2019
Shares
Under
Restriction
89,135
33,778
(44,085)
(626)
78,202
Weighted
Average
Fair Value
68.70
$
92.52
68.41
75.50
79.09
$
2018
Shares
Under
Restriction
93,086
39,451
(43,276)
(126)
89,135
Weighted
Average
Fair Value
63.13
$
75.05
62.46
70.63
68.70
$
Shares Under
Restriction
2020
Performance-based Weighted
Average
Fair Value
79.34
$
84.68
73.55
84.86
84.94
84,105
36,649
(42,123)
(6,667)
71,964
$
Shares Under
Restriction
Years Ended December 31,
2019
Performance-based Weighted
Average
Fair Value
66.79
$
69.61
56.42
-
79.34
105,170
63,447
(84,512)
—
84,105
$
Shares Under
Restriction
2018
Performance-based Weighted
Average
Fair Value
62.75
$
75.14
61.50
62.41
66.79
105,660
31,832
(27,801)
(4,521)
105,170
$
Outstanding at beginning of year
Granted
Vested and unrestricted
Forfeited
Outstanding at end of period
Outstanding at beginning of year
Granted (1)
Vested and unrestricted
Forfeited
Outstanding at end of period
(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.
As of December 31, 2020, there was $6,691 of unrecognized compensation expense related to non-vested
restricted stock awards that is expected to be recognized over a weighted average period of 1.5 years. The total fair value
of the shares that were vested and unrestricted during the years ended December 31, 2020, 2019, and 2018 was $6,516,
$7,784 and $4,413, respectively. For the years ended December 31, 2020, 2019, and 2018, the Company recorded
compensation expense related to awards under the Incentive Plan of $5,893, $4,764, and $5,197, net of income tax
benefit of $1,566, $1,266, and $1,382, respectively.
8.
Commitments and Contingencies
Commitments
As part of the Company’s investment activity, we have committed $110,000 to investments in limited
partnerships. The Company has contributed $61,455 to these commitments as of December 31, 2020. As of
December 31, 2020, the remaining committed capital that could be called is $51,112, which includes potential recallable
capital distributions.
80
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.
The Company has been named in a lawsuit alleging that the Company improperly denied coverage to
commercial insureds for loss of business income resulting from the COVID-19 pandemic. 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. As a result, the Company
accrued a reserve of $6,500 for legal defense costs during the year ended December 31, 2020.
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 will not have a material effect upon the financial position of the Company.
9. Leases
The Company has various non-cancelable, long-term operating leases, the largest of which are for office space
including the corporate headquarters, VIP claims centers and law offices. Other operating leases consist of auto leases
and various office equipment. The Company has no finance leases. Our leases have remaining lease terms of one year
to eight years, some of which include options to extend the leases for up to five years.
Certain lease agreements contain renewal options and, in addition to the minimum annual rentals, generally
provide for payment of a share of the real estate taxes and operating expenses in excess of a base amount. Rental expense
for our office space, law offices and VIP claims centers was $3,477, $4,573 and $3,531 for the years ended
December 31, 2020, 2019, and 2018, respectively. All leases expire prior to 2029. The Company expects that in the
normal course of business, leases that expire will be renewed.
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:
Operating lease cost
$
Year Ended December 31,
2020
4,591
2019
4,645
81
Other information related to leases was as follows:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Weighted average remaining lease term
Operating leases
Weighted average discount rate
Operating leases
Maturities of lease liabilities were as follows:
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less imputed interest
Total
10.
Debt
Year Ended December 31,
2020
2019
$
5,073
$
5,082
7.57 Years
2.33%
8.42 Years
2.39%
$
$
Operating Leases
4,953
4,401
3,972
3,901
3,835
11,572
32,634
(1,634)
31,000
On 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 December 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 December 31, 2020 or 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 December 31, 2020 and 2019.
The Company is a member of the Federal Home Loan Bank of Boston (“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 December 31, 2020, the Company has the ability to
borrow approximately $235,436 using eligible invested assets that would be used as collateral.
82
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 with a fair value of $37,467. The
Company had no amounts outstanding from the FHLB-Boston at December 31, 2019.
Interest expense on the FHLB-Boston borrowing was $439 for the year ended December 31, 2020. There was
no interest expense for the year ended December 31, 2019.
11.
Reinsurance
The Company cedes insurance to CAR and to other reinsurers. The Company has various excess of loss and
quota share agreements 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 is subject to concentration of credit risk with respect to reinsurance ceded. At December 31,
2020, reinsurance receivables on paid and unpaid loss and LAE with a carrying value of $117,681 and ceded unearned
premiums of $20,589 were associated with CAR. At December 31, 2019, reinsurance receivables on paid and unpaid
loss and LAE with a carrying value of $130,005 and ceded unearned premiums of $33,587 were associated with CAR.
The Company assumes a proportionate share of the obligations from CAR. The Company makes an estimate of its share
of assumed activity from the most recent quarter reported by CAR and records adjustments to the reported activity to
reflect its anticipated final assumed obligations. The Company’s participation in CAR resulted in assumed net losses of
$3,480, $3,595 and $5,362 for the years ended December 31, 2020, 2019 and 2018, respectively.
CAR has been, with few exceptions, required by law to issue a policy to any applicant who seeks it. As a
servicing carrier of CAR, this requirement has applied to the Company.
The effect of assumed and ceded premiums on net written and earned premiums and losses and LAE incurred is
as follows.
Written Premiums
Direct
Assumed
Ceded
Net written premiums
Earned Premiums
Direct
Assumed
Ceded
Net earned premiums
Loss and LAE
Direct
Assumed
Ceded
Net loss and LAE
2020
Years Ended December 31,
2019
2018
$
$
$
$
$
$
798,712
26,316
(61,491)
763,537
815,981
29,365
(74,268)
771,078
428,018
18,595
(42,057)
404,556
$
$
$
$
$
$
852,404
32,391
(90,386)
794,409
845,102
32,853
(89,178)
788,777
562,192
28,529
(80,875)
509,846
$
$
$
$
$
$
843,675
32,403
(89,166)
786,912
836,759
32,196
(87,368)
781,587
538,569
28,815
(81,871)
485,513
83
12.
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.
Reserves for losses and LAE at beginning of year
Less receivable from reinsurers related to unpaid losses and LAE
Net reserves for losses and LAE at beginning of year
Incurred losses and LAE, related to:
Current year
Prior years
Total incurred losses and LAE
Paid losses and LAE related to:
Current year
Prior years
Total paid losses and LAE
Net reserves for losses and LAE at end of period
Plus receivable from reinsurers related to unpaid losses and LAE
Reserves for losses and LAE at end of period
2020
Year Ended December 31,
2019
2018
$
$
$
610,566
(122,372)
488,194
$
584,719
(108,398)
476,321
459,400
(54,844)
404,556
277,754
153,726
431,480
461,270
106,311
567,581
$
551,895
(42,049)
509,846
333,377
164,596
497,973
488,194
122,372
610,566
$
574,054
(83,085)
490,969
542,001
(56,488)
485,513
340,927
159,234
500,161
476,321
108,398
584,719
At the end of each period, the reserves were re-estimated for all prior accident years. The Company’s prior year
reserves decreased by $54,844, $42,049, and $56,488, for the years ended December 31, 2020, 2019, and 2018,
respectively, and resulted from re-estimations of prior years’ ultimate loss and LAE liabilities. The decrease in prior year
reserves during 2020 was primarily composed of reductions of $26,902 in the Company’s retained automobile and
$21,717 in the Company’s retained other than auto and homeowners reserves. The decrease in prior year reserves during
2019 was primarily composed of reductions of $25,623 in the Company’s retained automobile and $14,182 in the
Company’s retained other than auto and homeowners reserves. The decrease in prior year reserves during 2018 was
primarily composed of reductions of $36,266 in the Company’s retained automobile and $18,947 in the Company’s
retained homeowners reserves.
The Company’s private passenger automobile line of business prior year reserves decreased during the years
ended December 31, 2020, 2019 and 2018 primarily due to improved retained private passenger results. The improved
retained private passenger results were 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.
The following is information about incurred and paid claims development as of December 31, 2020, net of
reinsurance, as well as cumulative claim frequency and the total of incurred-but-not-reported liabilities plus expected
development on reported claims included within the net incurred claims amounts for our three largest lines of business.
The cumulative number of reported claims include claims closed with payment, claims closed without payment and all
open claims. It does not include anticipated IBNR claims. For the Private Passenger Automobile and Commercial
Automobile lines of business, claim count is defined on a claimant basis where several claim counts may arise from a
single auto accident. For Homeowners and all other lines of business, claim count is defined on an accident basis.
The information about incurred claims and allocated claim adjustment expense, net of reserves and paid
ultimate claims development for the years ended December 31, 2011 to 2019 is presented as required supplementary
information.
84
Private Passenger Automobile Liability
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Accident Year
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
For the Years Ended December 31,
2011
$ 176,727
$ 176,906
$ 176,906
$ 175,209
$ 172,957
$ 171,852
$ 170,732
$ 168,671
$ 168,625
$ 168,545
(Unaudited)
2012
2013
2014
2015
2016
2017
2018
2019
2020
175,262
175,189
174,856
170,379
167,831
166,008
163,350
162,448
183,367
183,517
183,264
181,492
179,167
176,713
175,684
187,305
187,104
186,798
183,119
181,312
179,251
190,036
190,236
188,317
184,477
181,299
192,912
192,318
185,009
180,486
185,673
184,429
182,068
176,411
175,222
176,171
162,520
175,718
179,267
179,451
177,009
177,941
170,447
174,439
130,335
Total
$ 1,695,672
Private Passenger Automobile Liability
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
As of December 31, 2020
Total of
Incurred-but-
Not-Reported
Liabilities Plus
Expected
Development of
Reported
Claims
Cumulative
Number of
Reported
Claims
$ -
(7)
(194)
(1,388)
(698)
(2,481)
(4,569)
(10,576)
(8,860)
3,290
56,124
53,273
54,248
52,787
52,978
49,380
46,237
42,997
40,287
24,467
Accident Year
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
For the Years Ended December 31,
$ 76,467
$ 130,018
$ 146,532
$ 158,904
$ 164,413
$ 167,251
$ 168,025
$ 168,585
$ 168,593
$ 168,527
(Unaudited)
74,306
126,553
144,157
152,991
157,443
160,416
161,749
162,014
79,049
135,031
152,472
163,694
169,634
172,736
173,890
79,151
136,434
156,693
166,815
173,163
176,616
76,934
138,255
156,483
168,641
173,816
78,862
137,917
154,964
167,458
77,519
133,037
153,675
72,895
126,456
72,219
162,121
174,574
177,360
176,652
171,865
164,467
143,656
127,910
52,962
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
All outstanding liabilities before 2011, net of reinsurance
411
Liabilities for claims and claim adjustment expenses, net of reinsurance
$ 175,989
Total
$ 1,520,094
85
Private Passenger Automobile Physical Damage
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Accident Year
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
For the Years Ended December 31,
(Unaudited)
$ 118,131
$ 117,951
$ 115,028
$ 113,821
$ 113,765
$ 113,674
$ 113,677
$ 113,640
$ 113,630
$ 113,597
108,376
107,912
104,393
103,679
103,575
103,547
103,510
103,491
103,453
114,389
114,239
113,034
112,197
112,096
112,060
112,029
112,003
123,421
123,622
122,410
122,327
122,341
122,213
122,188
140,219
136,661
134,101
133,737
133,581
133,530
129,528
124,922
122,116
121,717
121,543
128,340
126,304
124,128
123,715
129,450
130,145
128,426
As of December 31, 2020
Total of
Incurred-but-
Not-Reported
Liabilities Plus
Expected
Development of
Reported
Claims
Cumulative
Number of
Reported
Claims
$ -
-
-
(28)
(66)
(117)
(161)
(312)
140,509
123,639
131,703
135,006
144,274
126,083
124,009
119,716
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
128,698
126,648
(2,104)
116,872
98,546
(13,912)
79,899
Total
$ 1,183,649
Private Passenger Automobile Physical Damage
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Accident Year
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
For the Years Ended December 31,
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
$ 126,196
$ 117,152
$ 114,451
$ 113,809
$ 113,719
$ 113,673
$ 113,669
$ 113,640
$ 113,630
$ 113,597
(Unaudited)
111,928
107,017
120,843
104,311
115,904
130,732
103,664
112,894
126,414
143,532
103,573
112,162
122,668
136,760
133,530
103,537
112,085
122,402
134,066
124,298
132,409
103,510
112,060
122,350
133,701
122,023
126,822
138,036
103,491
112,029
122,251
133,639
121,795
124,286
132,591
134,429
103,452
112,003
122,216
133,596
121,660
123,844
128,624
128,173
102,764
All outstanding liabilities before 2011, net of reinsurance
-
Liabilities for claims and claim adjustment expenses, net of reinsurance
($ 6,282)
Total
$ 1,189,929
86
Commercial Automobile Liability
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Accident Year
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
For the Years Ended December 31,
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
(Unaudited)
$ 23,658
$ 24,298
$ 24,160
$ 24,187
$ 23,649
$ 22,933
$ 22,817
$ 22,759
$ 22,488
$ 22,485
23,704
24,447
29,175
24,662
24,723
24,572
23,819
29,541
28,377
26,864
26,310
22,859
25,986
22,476
25,443
22,292
25,353
34,117
34,105
34,376
33,914
32,948
32,438
32,200
35,371
36,150
36,610
37,730
38,015
38,257
37,954
39,416
40,947
40,916
40,679
42,865
41,373
41,055
39,369
41,347
40,115
38,589
51,679
49,163
35,010
Total
$ 343,397
As of December 31, 2020
Total of
Incurred-but-
Not-Reported
Liabilities Plus
Expected
Development of
Reported
Claims
Cumulative
Number of
Reported
Claims
$ 22
150
167
(68)
(58)
(718)
575
1,333
2,099
13,235
4,958
4,566
5,784
6,085
7,212
6,455
6,129
5,740
5,635
3,011
Commercial Automobile Liability
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Accident Year
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
For the Years Ended December 31,
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
$ 7,306
$ 14,263
$ 17,807
$ 19,783
$ 20,941
$ 21,913
$ 22,043
$ 22,445
$ 22,463
$ 22,463
(Unaudited)
6,503
12,474
8,502
15,617
17,079
9,426
17,804
19,625
17,853
11,181
18,876
21,129
21,968
21,700
9,991
20,601
22,434
25,253
26,018
19,902
10,407
21,021
23,867
27,886
29,804
25,711
20,106
9,704
22,086
24,507
30,420
31,537
32,274
24,409
18,499
12,113
22,121
24,732
31,298
33,416
36,237
28,721
23,544
22,480
7,025
Total
$ 252,037
All outstanding liabilities before 2011, net of reinsurance
89
Liabilities for claims and claim adjustment expenses, net of reinsurance
$ 91,449
87
Commercial Automobile Physical Damage
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Accident Year
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
For the Years Ended December 31,
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
(Unaudited)
$ 11,511
$ 11,151
$ 11,031
$ 10,960
$ 10,952
$ 10,910
$ 10,952
$ 11,024
$ 11,048
$ 11,048
10,382
10,382
10,331
10,249
10,250
10,208
10,209
10,226
10,224
13,666
13,567
13,298
13,180
13,057
13,047
13,071
17,426
16,925
15,455
15,419
15,353
15,381
20,223
19,047
19,021
18,974
18,641
20,216
18,506
17,909
17,808
19,691
19,200
19,021
21,230
19,937
20,039
13,057
15,373
18,535
17,725
18,834
19,270
19,652
16,507
Total
$ 160,225
As of December 31, 2020
Total of
Incurred-but-
Not-Reported
Liabilities Plus
Expected
Development of
Reported
Claims
Cumulative
Number of
Reported
Claims
$ -
-
-
0
5
16
26
35
483
(127)
11,488
9,913
12,298
13,545
15,468
13,593
13,113
12,905
12,736
9,052
Commercial Automobile Physical Damage
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Accident Year
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
For the Years Ended December 31,
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
$ 11,006
$ 11,119
$ 11,092
$ 11,060
$ 11,055
$ 11,053
$ 11,050
$ 11,049
$ 11,048
$ 11,048
(Unaudited)
9,707
10,553
12,665
10,270
13,378
15,377
10,242
13,114
15,862
17,787
10,239
13,074
15,424
18,910
17,228
10,235
13,065
15,388
18,667
18,143
17,957
10,228
13,060
15,381
18,549
17,763
19,336
18,842
10,226
13,066
15,376
18,541
17,712
18,915
19,842
18,128
10,224
13,057
15,373
18,530
17,709
18,787
19,236
19,161
15,550
All outstanding liabilities before 2011, net of reinsurance
-
Liabilities for claims and claim adjustment expenses, net of reinsurance
$ 1,551
Total
$ 158,675
88
Homeowners Liability
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Accident Year
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
For the Years Ended December 31,
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
$ 6,260
$ 7,644
$ 7,644
$ 7,531
$ 6,923
$ 6,017
$ 5,546
$ 4,845
$ 4,845
$ 4,846
(Unaudited)
7,514
7,514
9,768
7,514
9,768
6,464
9,337
11,494
11,494
5,304
7,578
9,738
12,965
12,555
4,331
5,978
7,388
9,908
10,594
10,594
11,276
3,824
5,312
7,120
9,201
10,594
10,058
9,951
3,889
5,147
6,984
9,201
9,847
9,328
9,951
14,130
3,646
5,147
6,984
9,201
9,491
8,585
9,951
13,848
14,664
Total
$ 86,363
As of December 31, 2020
Total of
Incurred-but-
Not-Reported
Liabilities Plus
Expected
Development of
Reported
Claims
Cumulative
Number of
Reported
Claims
$ -
-
7
118
(77)
53
90
(1,733)
2,186
6,531
304
249
264
261
288
275
267
250
246
171
Homeowners Liability
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Accident Year
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
For the Years Ended December 31,
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
$ 235
$ 1,969
$ 3,459
$ 4,336
$ 4,497
$ 4,536
$ 4,758
$ 4,769
$ 4,769
$ 4,770
(Unaudited)
1,389
2,063
527
2,308
2,337
340
2,731
3,080
1,834
428
3,029
3,493
3,212
3,319
647
3,600
3,829
4,200
4,267
2,669
305
3,606
4,038
4,828
5,205
4,257
1,676
551
3,646
4,209
6,315
6,445
5,387
2,913
2,039
1,634
3,646
4,247
6,368
7,022
6,300
3,593
3,972
3,343
220
All outstanding liabilities before 2011, net of reinsurance
0
Liabilities for claims and claim adjustment expenses, net of reinsurance
$ 42,882
Total
$ 43,481
89
Homeowners Property Damage
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Accident Year
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
For the Years Ended December 31,
(Unaudited)
As of December 31, 2020
Total of
Incurred-but-
Not-Reported
Liabilities Plus
Expected
Development of
Reported
Claims
Cumulative
Number of
Reported
Claims
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
$ 95,586
$ 98,021
$ 97,571
$ 94,657
$ 93,914
$ 93,186
$ 92,595
$ 92,388
$ 92,387
$ 92,385
$ 204
15,116
50,351
49,911
47,392
44,380
43,097
42,382
41,895
41,887
41,887
56,298
56,199
55,722
52,464
51,077
49,973
49,463
59,160
60,213
59,751
57,331
55,127
54,607
49,456
54,602
152,586
152,049
162,377
162,788
162,722
162,354
67,116
66,442
64,208
61,262
80,736
76,560
70,689
83,443
82,581
77,976
60,019
68,737
77,970
73,697
80,093
Total
$ 761,200
148
126
268
334
393
1,202
2,970
(4,695)
(3,791)
6,051
5,698
6,077
20,075
5,421
6,010
8,236
5,431
5,865
Homeowners Property Damage
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Accident Year
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
For the Years Ended December 31,
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
(Unaudited)
$ 71,532
$ 89,742
$ 92,184
$ 92,462
$ 92,444
$ 92,333
$ 92,182
$ 92,182
$ 92,182
$ 92,180
30,801
40,681
38,661
41,960
48,456
40,409
41,737
49,702
52,161
41,782
49,612
54,088
41,789
49,653
54,224
41,736
49,620
54,262
41,736
49,328
54,274
41,737
49,327
54,306
112,563
145,337
160,572
161,745
161,773
161,850
44,103
57,238
46,366
59,155
64,401
57,704
59,449
66,181
70,959
49,121
59,403
66,892
72,078
61,905
50,304
Total
$ 709,982
All outstanding liabilities before 2011, net of reinsurance
89
Liabilities for claims and claim adjustment expenses, net of reinsurance
$ 51,307
90
The following is unaudited supplementary information about average historical claims duration as of December
31, 2020.
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Unaudited)
Years
Private Passenger Automobile
Liability
Private Passenger Automobile
Physical Damage
Commercial Automobile Liability
Commercial Automobile Physical
Damage
Homeowners Liability
Homeowners Property Damage
1
2
3
4
5
6
7
8
9
10
43.7%
32.2%
10.4%
6.4%
3.1%
1.8%
0.6%
0.3%
0.0%
0.0%
107.7%
26.8%
(5.2)%
25.7%
(2.5)%
12.7%
(0.4)%
10.7%
(0.1)%
6.6%
96.3%
7.3%
71.2%
5.3%
21.2%
20.5%
(2.2)%
16.5%
4.4%
(0.4)%
11.4%
0.4%
0.0%
9.1%
0.0%
0.0%
6.1%
0.0%
9.7%
0.0%
0.0%
2.0%
0.0%
2.2%
(0.2)%
0.0%
2.4%
0.0%
0.7%
0.0%
0.0%
0.1%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
The reconciliation of the net incurred and paid claims development tables to the liability for claims and claim
adjustment expenses in the consolidated balance sheets is as follows.
Reconciliation of the Disclosure of Incurred and Paid Claims Development to the Liability for Unpaid claims and Claim Adjustment Expenses
December 31, 2020
Net outstanding liabilities
Private Passenger Automobile Liability
Private Passenger Automobile Physical Damage
Commercial Automobile Liability
Commercial Automobile Physical Damage
Homeowners Liability
Homeowners Property Damage
Other Short-Duration Insurance Lines
Liabilities for unpaid claims and claim adjustment expenses, net of reinsurance
Reinsurance recoverable on unpaid claims
Private Passenger Automobile Liability
Private Passenger Automobile Physical Damage
Commercial Automobile Liability
Commercial Automobile Physical Damage
Homeowners Liability
Homeowners Property Damage
Other Short-Duration Insurance Lines
Total reinsurance recoverable on unpaid claims
Unallocated claims adjustment expenses
Total gross liability for unpaid claims and claim adjustment expenses
$
$
$
$
$
175,989
(6,282)
91,449
1,551
42,882
51,307
74,781
431,677
131
-
104,222
1,301
-
-
657
106,311
29,593
567,581
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.
91
13.
Income Taxes
A summary of the income tax expense in the Consolidated Statements of Operations is shown below.
Current Income Taxes:
Federal
State
Deferred Income Taxes:
Federal
State
Total income tax expense
2020
Years Ended December 31,
2019
2018
$
$
31,133
267
31,400
5,159
—
5,159
36,559
$
$
19,280
43
19,323
4,757
—
4,757
24,080
$
$
26,548
108
26,656
(5,600)
—
(5,600)
21,056
The income tax expense attributable to the consolidated results of operations is different from the amounts
determined by multiplying income before federal income taxes by the statutory federal income tax rate. The sources of
the difference and the tax effects of each were as follows for the periods indicated.
Federal income tax expense at statutory rate
Investment income, net
State taxes, net
Nondeductible expenses
Tax windfall related to share-based stock compensation
Other, net
Total income tax expense
2020
Years Ended December 31,
2019
2018
36,702
(1,394)
211
697
(298)
641
36,559
$
$
25,973
(1,626)
34
488
(1,003)
214
24,080
$
$
21,893
(1,862)
85
494
(79)
525
21,056
$
$
The deferred income tax (liability) asset represents the tax effects of temporary differences attributable to the
Company’s consolidated federal tax return group. Its components were as shown in the following table for the periods
indicated.
Deferred tax assets:
Discounting of loss reserves
Discounting of unearned premium reserve
Bad debt allowance
Employee benefits
Rent incentive
Total deferred tax assets before valuation allowance
Valuation allowance for deferred tax assets
Total deferred tax assets
Deferred tax liabilities:
Deferred acquisition costs
Investments
Net unrealized gains on investments
Loss reserve transition adjustment
Software development costs
Premium acquisition expenses
Depreciation
Total deferred tax liabilities
Net deferred tax liability
Years Ended December 31,
2020
2019
$
$
5,421
17,217
433
3,609
912
27,592
—
27,592
(15,742)
(4,349)
(18,720)
(1,385)
(3,053)
(379)
(1,575)
(45,203)
(17,611)
$
$
5,642
17,710
274
4,340
1,063
29,029
—
29,029
(15,600)
(1,744)
(11,985)
(1,662)
(2,109)
(509)
(1,137)
(34,746)
(5,717)
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.
92
During the years ended December 31, 2020 and December 31, 2019 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.
As of December 31, 2020 and December 31, 2019, the Company had no unrecognized tax benefits, and none
which if recognized would affect the effective tax rate. The Company does not currently anticipate significant changes in
the amount of unrecognized income tax benefits during the next twelve months.
The Company records interest and penalties associated with audits as a component of income before income
taxes. Penalties are recorded in underwriting, operating and other expenses, and interest expense is recorded in interest
expenses in the Consolidated Statements of Operations. The Company had no interest and penalties related to income
taxes accrued as of December 31, 2020 and 2019.
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. All tax years prior to 2017 are closed.
14.
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. As of December 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 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 year ended December 31, 2020, the Company purchased 551,598 shares, on the open market under
the program at a cost of $39,999. No share purchases were made by the Company under the program during the years
ended December 31, 2019 or 2018. As of December 31, 2020, the Company had purchased 2,831,168 shares at cost of
$123,834. As of December 31, 2019 and 2018, the Company had purchased 2,279,570 shares on the open market at a
cost of $83,835.
15.
Statutory Net Income and Surplus
Statutory Accounting Practices
The Company’s insurance company subsidiaries, domiciled in the Commonwealth of Massachusetts, prepare
statutory financial statements in accordance with the accounting practices prescribed or permitted by the Division.
Prescribed statutory accounting practices are those practices that are incorporated directly or by reference in state laws,
regulations, and general administrative rules applicable to all insurance enterprises domiciled in a particular state.
Permitted statutory accounting practices include practices not prescribed by the Division, but allowed by the Division.
Statutory net income was $121,446, $75,469, and $86,734 for the years ended December 31, 2020, 2019, and 2018,
respectively. Statutory capital and surplus of the Company’s insurance subsidiaries was $754,066, and $704,177 at
December 31, 2020 and 2019, respectively.
Dividends
The 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 Commonwealth of Massachusetts
Commissioner of Insurance (the “Commissioner”). Massachusetts statute limits the dividends an insurer may pay in any
93
twelve month period, without the prior permission of the Commissioner, to the greater of (i) 10% of the insurer’s surplus
as of the preceding December 31 or (ii) the insurer’s net income for the twelve- month period ending the preceding
December 31, in each case determined in accordance with statutory accounting practices. Our insurance company
subsidiaries may not declare an “extraordinary dividend” (defined as any dividend or distribution that, together with
other distributions made within the preceding twelve months, exceeds the limits established by Massachusetts statute)
until thirty days after the Commissioner has received notice of the intended dividend and has not objected. As
historically administered by the Commissioner, this provision requires the Commissioner’s prior approval of an
extraordinary dividend. Under Massachusetts law, an insurer may pay cash dividends only from its unassigned funds,
also known as earned surplus, and the insurer’s remaining surplus must be both reasonable in relation to its outstanding
liabilities and adequate to its financial needs. At December 31, 2020, the statutory capital and surplus of Safety Insurance
was $754,066 and its net income for 2020 was $121,446. As a result, a maximum of $121,446 is available in 2021 for
such dividends without prior approval of the Commissioner. During the year ended December 31, 2020, Safety Insurance
recorded dividends of $89,156. As result of this Massachusetts statute, the Insurance Subsidiaries had restricted net
assets in the amount of $632,620 at December 31, 2020.
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, 2020, the Insurance Subsidiaries had total adjusted capital of $754,066,
which is in excess of amounts requiring company or regulatory action at any prescribed risk-based capital action level.
Minimum statutory capital and surplus, or company action level risk-based capital, was $197,193 at December 31, 2020.
16.
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
94
a security is within an accepted tolerance level, the quoted price obtained from the Company’s primary source is used for
the security. If the variance between the primary and secondary price quotes exceeds an accepted tolerance level, the
Company obtains a quote from an alternative source, if possible, and documents and resolves any differences between
the pricing sources. In addition, the Company may request that its investment managers and its traders provide input as
to which vendor is providing prices that its traders believe are reflective of fair value for the security. Following this
process, the Company may decide to value the security in its financial statements using the secondary or alternative
source if it believes that pricing is more reflective of the security’s value than the primary pricing provided by its
custodian bank. The Company analyzes market valuations received to verify reasonableness, to understand the key
assumptions used and their sources, and to determine an appropriate ASC 820 fair value hierarchy level based upon
trading activity and the observability of market inputs. Based on this evaluation and investment class analysis, each
price is classified into Level 1, 2 or 3.
Fair values of instruments are based on (i) quoted prices in active markets for identical assets (Level 1),
(ii) quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets
that are not active and model-derived valuations in which all significant inputs are observable in active markets (Level 2)
or (iii) valuations derived from valuation techniques in which one or more significant inputs are unobservable in the
marketplace (Level 3).
The Company’s Level 1 securities consist of equity securities whose values are based on quoted prices in active
markets for identical assets. The Company’s Level 2 securities are comprised of available-for-sale fixed maturity
securities whose fair value was determined using observable market inputs. The Company’s Level 3 security consists of
an investment in the 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:
(cid:120) 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.
(cid:120)
(cid:120)
(cid:120)
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.
(cid:120) 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.
(cid:120)
FHLB-Boston: value is equal to the cost of the member stock purchased.
95
In order to ensure the fair value determination is representative of an exit price (consistent with ASC 820), the
Company’s procedures for validating quotes or prices obtained from third parties include, but are not limited to,
obtaining a minimum of two price quotes for each fixed maturity security if possible, as discussed above, the periodic
testing of sales activity to determine if there are any significant differences between the market price used to value the
security as of the balance sheet date and the sales price of the security for sales that occurred around the balance sheet
date, and the periodic review of reports provided by its external investment manager regarding those securities with
ratings changes and securities placed on its “Watch List.” In addition, valuation techniques utilized by pricing services
and prices obtained from external sources are reviewed by the Company’s external investment manager, whose
investment professionals are familiar with the securities being priced and the markets in which they trade, to ensure the
fair value determination is representative of an exit price (consistent with ASC 820).
All unadjusted estimates of fair value for our fixed maturities priced by the pricing services as described above
are included in the amounts disclosed in Level 2. With the exception of the FHLB-Boston security, which is categorized
as a Level 3 security, the Company’s entire portfolio was priced based upon quoted market prices or other observable
inputs as of December 31, 2020. There were no significant changes to the valuation process during the year ended
December 31, 2020. As of December 31, 2020 and December 31, 2019, no quotes or prices obtained were adjusted by
management. All broker quotes obtained were non-binding.
At December 31, 2020 and December 31, 2019, investments in fixed maturities classified as available-for-sale
had a fair value which equaled carrying value of $1,256,653 and $1,228,040, respectively. At December 31, 2020, the
Company’s held $441 of short-term investments. As of December 31, 2019, we held 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.
U.S. Treasury securities
Obligations of states and political subdivisions
Residential mortgage-backed securities
Commercial mortgage-backed securities
Other asset-backed securities
Corporate and other securities
Short term investments
Equity securities
Total investment securities
U.S. Treasury securities
Obligations of states and political subdivisions
Residential mortgage-backed securities
Commercial mortgage-backed securities
Other asset-backed securities
Corporate and other securities
Equity securities
Total investment securities
As of December 31, 2020
Total
Level 1 Inputs
$
$
1,865
222,389
241,597
126,035
73,124
591,643
441
173,096
1,430,190
$
$
— $
—
—
—
—
—
—
171,398
171,398
$
Level 2 Inputs
1,865
222,389
241,597
126,035
73,124
591,643
441
—
1,257,094
Level 3 Inputs
—
—
—
—
—
—
—
1,698
1,698
$
$
As of December 31, 2019
Total
1,512
251,396
307,202
109,738
36,222
521,970
144,877
1,372,917
$
$
$
Level 1 Inputs
$
— $
—
—
—
—
—
144,361
144,361
$
Level 2 Inputs
1,512
251,396
307,202
109,738
36,222
521,970
—
1,228,040
Level 3 Inputs
—
$
—
—
—
—
—
516
516
$
There were no transfers between Level 1 and Level 2 during the years ended December 31, 2020 or 2019.
96
The following tables summarize the changes in the Company’s Level 3 fair value securities for the periods
indicated.
Balance at beginning of period
Net gains and losses included in earnings
Net gains included in other comprehensive income
Purchases
Sales
Transfers into Level 3
Transfers out of Level 3
Balance at end of period
Years Ended December 31,
2020
2019
2018
$
$
516
—
—
1,182
—
—
—
1,698
$
$
680
—
—
133
(297)
—
—
516
$
$
680
—
—
—
—
—
—
680
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 2020,
2019 and 2018. The Company held one Level 3 security at December 31, 2020.
As of December 31, 2020 and December 31, 2019, there were approximately $32,158 and $32,760 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.
17.
Quarterly Results of Operations (Unaudited)
An unaudited summary of the Company’s 2020 and 2019 quarterly performance, and audited annual
performance, is as follows.
First
Quarter
Year ended December 31, 2020
Third
Quarter
Fourth
Quarter
Second
Quarter
Total revenue
Net (loss) income
(Loss) earnings per weighted average common share:
Basic
Diluted
Cash dividends paid per common share
$
181,044
(1,990)
$
207,770
42,494
$
222,400
44,742
$
235,034
52,965
$
(0.13)
(0.13)
0.90
2.80
2.78
0.90
2.99
2.96
0.90
3.57
3.55
0.90
First
Quarter
$
222,579
29,946
1.97
1.95
0.80
Total revenue
Net income
Earnings per weighted average common share:
Basic
Diluted
Cash dividends paid per common share
18.
Subsequent Events
Year ended December 31, 2019
Third
Quarter
Fourth
Quarter
Second
Quarter
$
216,002
25,934
$
215,273
15,619
$
223,899
28,102
$
1.70
1.68
0.80
1.02
1.01
0.90
1.84
1.82
0.90
Total
Year
846,248
138,211
9.25
9.18
3.60
Total
Year
877,753
99,601
6.52
6.46
3.40
The Company has evaluated subsequent events for recognition or disclosure in the consolidated financial
statements on Form 10-K filed herewith and no events have occurred that require recognition or disclosure.
97
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. 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,
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.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation
of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of
the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our
evaluation under the framework in Internal Control—Integrated Framework (2013), our management concluded that our
internal control over financial reporting was effective as of December 31, 2020.
PricewaterhouseCoopers LLP, the Company's independent registered public accounting firm, has audited the
effectiveness of Safety Insurance Group, Inc.'s internal control over financial reporting as of December 31, 2020, as
stated in their report which is included herein.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting identified in connection with the
evaluation required by Exchange Act Rules 13a-15 and 15d-15 that occurred during our last fiscal quarter that have
materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
98
ITEM 9B. OTHER INFORMATION
The following disclosures relate to actions taken by the Board of Directors of the Company (the "Board"), the
Compensation Committee of the Board and the Board of Directors of Safety Insurance Company and would otherwise
have been filed during the first fiscal quarter of 2021 on a Form 8-K.
(cid:120) On February 24, 2021, the Compensation Committee of the Board approved the 2020 annual executive cash
bonus pool in the total amount of $2,486 pursuant to the Annual Performance Incentive Plan. Of the total pool,
the following amounts were allocated to the Company's CEO and Named Executive Officers: George M.
Murphy, $948; Christopher T. Whitford, $248; James D. Berry, $342; Stephen A. Varga, $259; and Paul J.
Narciso, $249.
(cid:120) On February 24, 2021, the Compensation Committee of the Board approved executive long-term incentive
awards to certain members of senior management pursuant to our 2018 Long-Term Incentive Plan. The long-
term incentive awards were granted in a total amount of $2,950 in the form of restricted stock, to be effective on
and given a fair value of the closing price of our common stock on February 24, 2021. Of the total award, 45%
vests in three annual installments of 30% on February 24, 2022, 30% on February 24, 2023, and 40% on
February 24, 2024 and were allocated to the Company's Named Executive Officers as follows: George M.
Murphy, $360 worth of restricted stock; Christopher T. Whitford, $169 worth of restricted stock; James D.
Berry, $158 worth of restricted stock; Stephen A. Varga, $180 worth of restricted stock; and Paul J. Narciso,
$180 worth of restricted stock. Of the total award, 55% vests over a three-year performance period commencing
on January 1, 2021 and ending on December 31, 2023. Vesting of these shares is dependent upon the
attainment of pre-established performance objectives and were allocated to the Named Executive Officers as
follows: George M. Murphy $440 worth of restricted stock; Christopher T. Whitford, $206 worth of restricted
stock; James D. Berry, $193 worth of restricted stock; Stephen A. Varga, $220 worth of restricted stock; and
Paul J. Narciso, $220 worth of restricted stock.
(cid:120) Upon recommendation from the Compensation Committee, on February 24, 2021, the Board approved
executive deferred compensation awards pursuant to the Executive Incentive Compensation Plan in the total
amount of $2,050. Of the total award, the following amounts were allocated to the Company's CEO and Named
Executive Officers: George M. Murphy, $753; Christopher T. Whitford, $115; James D. Berry, $313; Stephen
A. Varga, $237; and Paul J. Narciso, $228.
99
ITEMS 10-14.
PART III
Within 120 days after the close of its fiscal year, the Company intends to file with the Securities and Exchange
Commission a definitive proxy statement pursuant to Regulation 14A of the Securities Exchange Act of 1934 as
amended, which will include the matters required by these items.
PART IV.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a) The following documents are filed as a part of this report:
1. Financial Statements: The Consolidated Financial Statements for the year ended December 31, 2020 are
contained herein as listed in the Index to Consolidated Financial Statements.
2. Financial Statement Schedules: The Financial Statement Schedules are contained herein as listed in the Index
to Financial Statement Schedules.
3. Exhibits: The exhibits are contained herein as listed in the Index to Exhibits.
100
SAFETY INSURANCE GROUP, INC.
INDEX TO FINANCIAL STATEMENT SCHEDULES
Schedules
I
II
III
IV
V
VI
Summary of Investments – Other than Investments in Related Parties as of December 31, 2020
Condensed Financial Information of the Registrant at December 31, 2020 and 2019 and for the years
ended December 31, 2020, 2019 and 2018
Supplementary Insurance Information at December 31, 2020, 2019 and 2018 and for the years ended
December 31, 2020, 2019 and 2018
Reinsurance for the years ended December 31, 2020, 2019 and 2018
Valuation and Qualifying Accounts at December 31, 2020, 2019 and 2018 and for the years ended
December 31, 2020, 2019 and 2018
Supplemental Information Concerning Property and Casualty Insurance Operations at December 31,
2020, 2019 and 2018 and for the years ended December 31, 2020, 2019 and 2018
Page
102
103
105
106
107
108
101
Safety Insurance Group, Inc.
Summary of Investments—Other than Investments in Related Parties
Schedule I
At December 31, 2020
(Dollars in thousands)
Fixed maturities:
U.S. government and government agencies and authorities
Obligations of states and political subdivisions
Corporate and other securities
Total fixed maturities
Short term securities
Corporate and other securities
Total short term investments
Equity securities:
Common stocks:
Industrial, miscellaneous and all other
Total equity securities
Other invested assets
Total investments
Cost or
Amortized Cost
Estimated
Fair Value
$
$
231,731
214,647
743,573
1,189,951
441
441
168,289
168,289
45,239
1,403,920
$
$
243,462
222,389
790,802
1,256,653
441
441
205,254
205,254
45,239
1,507,587
$
$
Amount at
which shown
in the Balance
Sheet
243,462
222,389
790,802
1,256,653
441
441
205,254
205,254
45,239
1,507,587
102
Safety Insurance Group, Inc.
Condensed Financial Information of the Registrant
Condensed Balance Sheets
Schedule II
(Dollars in thousands)
Assets
Investments in consolidated affiliates
Other
Total assets
Liabilities
Accounts payable and other liabilities
Total liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
Years Ended December 31,
2020
2019
886,662
39
886,701
2,022
2,022
884,679
886,701
$
$
$
$
810,251
54
810,305
1,899
1,899
808,406
810,305
$
$
$
$
Safety Insurance Group, Inc.
Condensed Financial Information of the Registrant
Condensed Statements of Operations and Comprehensive Income
Schedule II
(Dollars in thousands)
Revenues
Expenses
Net loss
Earnings from consolidated subsidiaries
Net income
Other comprehensive income (loss), net of tax
Comprehensive income
2020
Years Ended December 31,
2019
2018
—
1,833
(1,833)
140,044
138,211
25,337
163,548
$
$
—
1,694
(1,694)
101,295
99,601
38,896
138,497
$
$
—
1,695
(1,695)
84,890
83,195
(22,816)
60,379
$
$
103
Safety Insurance Group, Inc.
Condensed Financial Information of the Registrant
Condensed Statements of Cash Flows
Schedule II
(Dollars in thousands)
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Earnings from consolidated subsidiaries
Dividends received from consolidated subsidiaries(1)
Amortization of restricted stock expense
Changes in assets and liabilities:
Other assets
Accounts payable and accrued liabilities
Net cash provided by operating activities
Proceeds from exercise of stock options
Excess tax benefit from stock options exercised
Dividends paid
Acquisition of treasury stock
Net cash used for financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Years Ended December 31,
2020
2019
2018
$
138,211
$
99,601
$
83,195
(140,044)
89,156
7,359
15
(123)
94,574
—
—
(54,575)
(39,999)
(94,574)
—
—
—
(101,295)
47,585
6,514
15
247
52,667
—
—
(52,667)
—
(52,667)
—
—
—
(84,890)
45,271
5,789
(60)
(492)
48,813
—
—
(48,813)
—
(48,813)
—
—
—
$
$
$
(1) No portion of the dividends received from operating subsidiaries during 2020, 2019 or 2018 represent returns of capital and therefore no portion is
presented as an investing activity.
104
Safety Insurance Group, Inc.
Supplementary Insurance Information
Schedule III
(Dollars in thousands)
Deferred
Policy
Acquisition
Costs
As of December 31,
Future Policy
Benefits,
Losses,
Claims and Loss
Expenses
Years Ended December 31,
Unearned
Premiums
Earned
Premiums
Net
Investment
Income
$
74,962
74,287
73,355
$
567,581
610,566
584,719
$
421,901
442,219
435,380
$
771,078
788,777
781,587
41,045
46,665
43,788
Segment
Property and Casualty Insurance
2020
2019
2018
$
Premium
Revenue
Net
Investment
Income
Years Ended December 31,
Benefits,
Claims,
Losses, and
Settlement
Expenses
Amortization of
Deferred
Policy
Acquisition
Costs
Other
Operating
Expenses
Premiums
Written
$
771,078
788,777
781,587
$
41,045
46,665
43,788
$
404,556
509,846
485,513
$
146,955
147,945
146,601
$
119,527
96,191
100,042
763,537
794,409
786,912
Segment
Property and Casualty Insurance
2020
2019
2018
$
105
Safety Insurance Group, Inc.
Reinsurance
Schedule IV
(Dollars in thousands)
Property and Casualty
Insurance Earned Premiums
Years ended December 31,
2020
2019
2018
Gross
Amount
Ceded to Other
Companies
Assumed from
Other Companies
Net
Amount
Percent of
Amount
Assumed
to Net
$
$
815,981
845,102
836,759
$
74,268
89,178
87,368
$
29,365
32,853
32,196
771,078
788,777
781,587
3.8%
4.2%
4.1%
106
Safety Insurance Group, Inc.
Valuation and Qualifying Accounts
Schedule V
(Dollars in thousands)
Additions
Balance at
Beginning
of Period
Charged to
Costs and
Expenses
Charged to
Other
Accounts
Deductions(1)
Balance at
End of
Period
Allowance for doubtful accounts Years Ended December 31,
2020
2019
2018
$
$
578
482
414
$
3,294
1,358
1,338
$
—
—
—
$
2,118
1,262
1,270
1,754
578
482
(1) Deductions represent write-offs of accounts determined to be uncollectible.
107
Safety Insurance Group, Inc.
Supplemental Information Concerning Property and Casualty Insurance Operations
Schedule VI
(Dollars in thousands)
As of December 31,
Reserves for
Unpaid Claims
and Claims
Adjustment
Expenses
Deferred
Policy
Acquisition
Costs
Years Ended December 31,
Unearned
Premiums
Earned
Premiums
Net
Investment
Income
$
$
74,962
74,287
73,355
$
567,581
610,566
584,719
$
421,901
442,219
435,380
771,078
788,777
781,587
$
41,045
46,665
43,788
Years Ended December 31,
Claims and Claims
Adjustment Expenses
Incurred Related to
Current
Year
Prior
Year
Amortization
of Deferred
Policy
Acquisition
Costs
Paid Claims
and Claims
Adjustment
Expenses
Premiums
Written
$
$
459,400
551,895
542,001
$
(54,844)
(42,049)
(56,488)
$
146,955
147,945
146,601
$
431,480
497,973
500,161
763,537
794,409
786,912
Affiliation With Registrant
Consolidated Property & Casualty Subsidiaries
2020
2019
2018
Affiliation With Registrant
Consolidated Property & Casualty Subsidiaries
2020
2019
2018
108
SAFETY INSURANCE GROUP, INC.
INDEX TO EXHIBITS
Description
Form of Amended and Restated Certificate of Incorporation of Safety Insurance Group, Inc.(1)
Form of Amended and Restated Bylaws of Safety Insurance Group, Inc.(1)
Form of Stock Certificate for the Common Stock (1)
Description of Safety Insurance Group, Inc. Capital Stock (19)
Lease Agreement between Thomas Black Corporation and Aman, Inc. for the lease of office space
located on the 1st through 6th, 11th and 12th floors of 20 Custom House Street, Boston, Massachusetts,
dated June 11, 1987, and as amended on October 11, 1988, September 14, 1989, September 19, 1990,
February 23, 1994, December 20, 1996, June 24, 2002, July 26, 2004 and April 5, 2007, November 7,
2017 (2) (15)
Tax Indemnity Agreement by and among Safety Holdings, Inc. and the Management Team, dated
October 16, 2001(1)
2001 Restricted Stock Plan (1)(3)
Executive Incentive Compensation Plan (1)(3)
2002 Management Omnibus Incentive Plan, as Amended (5)
Safety Insurance Company Executive Incentive Compensation Plan—Basic Document(3)(4)(8)
Safety Insurance Company Executive Incentive Compensation Plan—Adoption Agreement(3)(4)(8)
Safety Insurance Company Executive Incentive Compensation Plan—Rabbi Trust Agreement(3)(4)(8)
Form of Restricted Stock Notice and Agreement (with vesting) under the 2002 Management Omnibus
Incentive Plan(3)(4)
Form of Restricted Stock Notice and Agreement (without vesting) under the 2002 Management
Omnibus Incentive Plan(3)(4)
Form of Nonqualified Stock Option Notice and Agreement under the 2002 Management Omnibus
Incentive Plan(3)(4)
Form of Incentive Stock Option Notice and Agreement under the 2002 Management Omnibus Incentive
Plan(3)(4)
Form of Stock Appreciation Right Notice and Agreement under the 2002 Management Omnibus
Incentive Plan(3)(4)
Annual Performance Incentive Plan(3)(5)
Amendment to Annual Performance Incentive Plan(3)(7)
Amendment to Management Omnibus Incentive Plan dated December 31, 2008(3)(7)
Amendment to Management Omnibus Incentive Plan dated August 4, 2010 (3)(9)
Amendment to Management Omnibus Incentive Plan, as Amended dated March 11, 2013(3)(10)
Form of Restricted Stock Notice and Agreement (with performance-based vesting) under the 2002
Management Omnibus Plan, as Amended(3)(10)
Exhibit
Number
3.1
3.2
4
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
Amended and Restated Revolving Credit Agreement with RBS Citizens(11)
109
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
21
23
24
31.1
31.2
32.1
32.2
Form of Restricted Stock Notice and Agreement (with performance-based vesting) under the 2002
Management Omnibus Plan, As Amended(3) (12)
Form of Restricted Stock Notice and Agreement (with performance-based vesting) under the 2002
Management Omnibus Plan, As Amended(3) (13)
Form of Restricted Stock Notice and Agreement under the 2002 Management Omnibus Plan, As
Amended(3) (13)
Employment Agreement by and between Safety Insurance Group, Inc. and John Drago as of April 1,
2016(3)(14)
Employment Agreement by and between Safety Insurance Group, Inc. and George M. Murphy as of
April 1, 2016(3)(14)
Employment Agreement by and between Safety Insurance Group, Inc. and individual executive member
as of January 1, 2021. (3) (20)
2018 Long-Term Incentive Plan (16)
Employment Agreement by and between Safety Insurance Group, Inc. and Christopher T. Whitford as
of March 2, 2020. (3) (18)
Employment Agreement by and between Safety Insurance Group, Inc. and Glenn R. Hiltpold as of
March 1, 2021. (3) (20)
Subsidiaries of Safety Insurance Group, Inc. (20)
Consent of PricewaterhouseCoopers LLP (20)
Power of Attorney (contained on the signature page herein)
CEO Certification Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (20)
CFO Certification Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002(20)
CEO Certification Pursuant to U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (20)
CFO Certification Pursuant to U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (20)
101.INS
Inline XBRL Instance Document (20)
101.SCH
Inline XBRL Taxonomy Extension Schema (20)
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase (20)
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase (20)
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase (20)
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase (20)
104
Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101) (20)
(1)
Incorporated herein by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-87056)
filed April 26, 2002, and as amended on Form S-8 (Reg. No. 333-110676) filed on November 21, 2003, as
amended on Form S-8 (Reg. No. 333-140423) filed on February 2, 2007, and as amended on Form S-8 (Reg.
No. 333-226690) filed on August 8, 2018.
110
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
Incorporated herein by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-87056)
filed April 26, 2002, and as amended on Form S-8 (Reg. No. 333-110676) filed on November 21, 2003, as
amended on Form S-8 (Reg. No. 333-140423) filed on February 2, 2007, and as amended on Form S-8 (Reg.
No. 333-226690) filed on August 8, 2018 and as incorporated herein by reference on Form 10-Q for the
quarterly period ended March 31, 2007, as filed on May 5, 2007, and as incorporated by reference to the
Registrant’s Form 10-K for the year ended December 31, 2017, as filed on February 28, 2018.
Denotes management contract or compensation plan or arrangement.
Incorporated herein by reference to the Registrant’s Form 10-K for the year ended December 31, 2004 filed on
March 16, 2005.
Incorporated herein by reference to the Registrant’s Form 10-K for the year ended December 31, 2006 filed on
March 1, 2007.
Incorporated herein by reference to the Registrant’s Form 10-K for the year ended December 31, 2007 filed on
March 14, 2008.
Incorporated herein by reference to the Registrant’s Form 8-K filed on December 31, 2008.
Incorporated herein by reference to the Registrant’s Form 10-Q for the quarter ended September 30, 2008, as
filed on November 7, 2008.
Incorporated herein by reference to the Registrant’s Form 10-K for the year ended December 31, 2010 filed on
March 14, 2011.
Incorporated herein by reference to the Registrant’s Form 10-K for the year ended December 31, 2012 filed on
March 18, 2013
Incorporated herein by reference to the Registrant’s Form 8-K filed on August 27, 2013.
Incorporated herein by reference to the Registrant’s Form 10-Q for the quarter ended June 30, 2013, as filed on
August 9, 2013.
Incorporated herein by reference to the Registrant’s Form 10-K for the year ended December 31, 2014 filed on
March 2, 2015
Incorporated herein by reference to the Registrant’s Form 10-Q for the quarter ended June 30, 2016, as filed on
August 5, 2016.
Incorporated herein by reference to the Registrant’s Form 10-K for the year ended December 31, 2017, as filed
on February 28, 2018.
Incorporated herein by reference to the Registrant’s Definitive Proxy Statement filed on April 11, 2018.
Incorporated herein by reference to the Registrant’s Form 10-K for the year ended December 31, 2018, as filed
on February 28, 2019.
Incorporated herein by reference to the Registrant’s Form 10-K for the year ended December 31, 2019, as filed
on February 28, 2020.
Incorporated herein by reference to the Registrant’s Form 10-K for the year ended December 31, 2020, as filed
on February 26, 2021.
Included herein.
111
ITEM 16. FORM 10-K SUMMARY
None
112
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the
Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on
February 26, 2021
SIGNATURES
Safety Insurance Group, Inc.
By:
/s/ George M. Murphy
George M. Murphy,
President, Chief Executive Officer
113
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes
and appoints George M. Murphy and Christopher T. Whitford, and each of them individually, his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Annual Report, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each
such attorney-in-fact and agent, or his substitutes, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, to all intents and purposes and as fully as he might or
could do in person, hereby ratifying and confirming all that each such attorney-in-fact and agent, or his substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed by the
following persons in the capacities and on the date indicated:
Signature
Title
Date
/s/ George M. Murphy
George M. Murphy
President, Chief Executive Officer
February 26, 2021
/s/ Christopher T. Whitford
Christoper T. Whitford
Vice President, Chief Financial Officer,
Secretary, and Principal Accounting Officer
/s/ David F. Brussard
David F. Brussard
/s/ Frederic H. Lindeberg
Frederic H. Lindeberg
/s/ Peter J. Manning
Peter J. Manning
/s/ David K. McKown
David K. McKown
/s/ Thalia M. Meehan
Thalia M. Meehan
/s/ Mary C. Moran
Mary C. Moran
Director
Director
Director
Director
Director
Director
February 26, 2021
February 26, 2021
February 26, 2021
February 26, 2021
February 26, 2021
February 26, 2021
February 26, 2021
114
Corporate Information
EXECUTIVE OFFICERS
BOARD OF DIRECTORS
George M. Murphy, CPCU
President and Chief Executive Officer
Christopher T. Whitford, CPA
Vice President, Chief Financial Officer and Secretary
James D. Berry, CPCU
Vice President—Underwriting
John P. Drago
Vice President—Marketing
Glenn R. Hiltpold, FCAS
Vice President—Actuarial Services
Ann M. McKeown
Vice President—Insurance Operations
Paul J. Narciso
Vice President—Claims
Stephen A. Varga
Vice President—Management Information Systems
Shareholder Information
TRANSFER AGENT
Broadridge Shareholder Services
C/O Broadridge Corporate Issuer Solutions
P.O. Box 1342
Brentwood, NY 11717-0718
Shareholder inquiries: 877-830-4936
www.shareholder.broadridge.com
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP
Boston, MA
GENERAL COUNSEL
Elizabeth B. Brodeur
20 Custom House Street
Boston, MA 02110
EXECUTIVE OFFICES
20 Custom House Street
Boston, MA 02110
617-951-0600
http://www.SafetyInsurance.com
David F. Brussard (3C)
Chairman
Frederic H. Lindeberg (1)(2)(4C)
Peter J. Manning (1C)(2)(4)
Thalia M. Meehan (1)(2C)(3)(4)
Mary C. Moran (1)(2)(4)
George M. Murphy (3)
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Investment Committee
(4) Member of the Nominating and Governance Committee
(C) Chairperson of the committee referenced
STOCK LISTING
We are listed on the NASDAQ Global Select Market
under the symbol “SAFT.”
OFFICE OF INVESTOR RELATIONS
20 Custom House Street
Boston, MA 02110
Tel: 877-951-2522
Fax: 617-603-4837
e-Mail: InvestorRelations@SafetyInsurance.com
ANNUAL MEETING OF SHAREHOLDERS
Wednesday, May 19, 2021 at 10:00 A.M. EST
20 Custom House Street, Boston, MA 02110
ANNUAL REPORT TO SHAREHOLDERS
Anyone interested in a copy of our Annual Report on
Form 10-K, or any of our other public information,
including press releases, Section 16 reports and other
SEC filings, may obtain a copy without charge by either
contacting the Office of Investor Relations listed above
or by viewing and downloading from our Web site:
www.SafetyInsurance.com, under “About Safety,”
“Investor Information.”
Safety Insurance Group, Inc.
20 Custom House Street
Boston, MA 02110
617-951-0600
www.SafetyInsurance.com