Safety Insurance (SAFT) 10-Q 2020 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2020

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

20 Custom House Street, Boston, Massachusetts 02110

(Address of principal executive offices including zip code)

(617) 951-0600

(Registrant’s telephone number, including area code)

Not Applicable

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ⌧  No ◻

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

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

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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

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

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

As of May 6, 2020 there were 15,309,497 shares of common stock with a par value of $0.01 per share outstanding.

SAFETY INSURANCE GROUP, INC.

TABLE OF CONTENTS

		Page No.
Part I. Financial Information
Item 1.	Consolidated Financial Statements
	Consolidated Balance Sheets	3
	Consolidated Statements of Operations	4
	Consolidated Statements of Comprehensive (Loss) Income	5
	Consolidated Statements of Changes in Shareholders’ Equity	6
	Consolidated Statements of Cash Flows	7
	Notes to Unaudited Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Information about Market Risk	45
Item 4.	Controls and Procedures	45
Part II. Other Information
Item 1	Legal Proceedings	47
Item 1A.	Risk Factors	47
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 3.	Defaults upon Senior Securities	47
Item 4.	Mine Safety Disclosures	48
Item 5.	Other Information	48
Item 6.	Exhibits	48
EXHIBIT INDEX		49
SIGNATURE		50

2

Safety Insurance Group, Inc. and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands, except share data)

	March 31,		December 31,
	2020		2019
	(Unaudited)
Assets
Investments:
Fixed maturities, available for sale, at fair value (amortized cost: $1,159,859 and $1,192,357, allowance for expected credit losses of $2,510 at March 31, 2020)	$	1,165,455	$	1,228,040
Equity securities, at fair value (cost: $153,359 and $151,121)		149,888		177,637
Other invested assets		41,881		37,278
Total investments		1,357,224		1,442,955
Cash and cash equivalents		41,567		44,407
Accounts receivable, net of allowance for expected credit losses of $334 at March 31, 2020		189,671		193,369
Receivable for securities sold		1,067		1,784
Accrued investment income		9,152		8,404
Taxes recoverable		—		1,003
Receivable from reinsurers related to paid loss and loss adjustment expenses		14,039		11,319
Receivable from reinsurers related to unpaid loss and loss adjustment expenses		121,337		122,372
Ceded unearned premiums		30,191		35,182
Deferred policy acquisition costs		72,132		74,287
Deferred income taxes		6,001		—
Equity and deposits in pools		30,004		29,791
Operating lease right-of-use-assets		34,256		33,998
Other assets		24,078		23,798
Total assets	$	1,930,719	$	2,022,669
Liabilities
Loss and loss adjustment expense reserves	$	608,693	$	610,566
Unearned premium reserves		428,291		442,219
Accounts payable and accrued liabilities		55,911		75,016
Payable for securities purchased		4,343		6,377
Payable to reinsurers		2,446		12,911
Deferred income taxes		—		5,717
Taxes payable		543		—
Debt		30,000		—
Operating lease liabilities		34,256		33,998
Other liabilities		4,127		27,459
Total liabilities		1,168,610		1,214,263
Commitments and contingencies (Note 8)
Shareholders’ equity
Common stock: $0.01 par value; 30,000,000 shares authorized; 17,732,359 and 17,662,779 shares issued		177		177
Additional paid-in capital		204,064		202,321
Accumulated other comprehensive income, net of taxes		6,404		28,190
Retained earnings		645,691		661,553
Treasury stock, at cost: 2,422,862 and 2,279,570 shares		(94,227)		(83,835)
Total shareholders’ equity		762,109		808,406
Total liabilities and shareholders’ equity	$	1,930,719	$	2,022,669

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

3

Safety Insurance Group, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

(Dollars in thousands, except per share data)

	Three Months Ended March 31,
	2020		2019
Net earned premiums	$	197,895	$	194,491
Net investment income		10,710		11,751
Earnings from partnership investments		1,339		835
Net realized losses on investments		(631)		(164)
Change in net unrealized gains on equity investments		(29,988)		11,801
Net impairment losses on investments (a)		—		(220)
Credit loss expense		(2,510)		—
Finance and other service income		4,229		4,085
Total revenue		181,044		222,579
Losses and loss adjustment expenses		120,746		126,027
Underwriting, operating and related expenses		63,082		60,434
Interest expense		47		22
Total expenses		183,875		186,483
(Loss) income before income taxes		(2,831)		36,096
Income tax (benefit) expense		(841)		6,150
Net (loss) income	$	(1,990)	$	29,946
(Loss) earnings per weighted average common share:
Basic	$	(0.13)	$	1.97
Diluted	$	(0.13)	$	1.95
Cash dividends paid per common share	$	0.90	$	0.80
Number of shares used in computing earnings per share:
Basic		15,230,784		15,140,804
Diluted		15,347,083		15,305,785
(a) No portion of the other-than-temporary impairments recognized in the period indicated were included in Other Comprehensive Income for the period ended March 31, 2019.

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

4

Safety Insurance Group, Inc. and Subsidiaries

Consolidated Statements of Comprehensive (Loss) Income

(Unaudited)

(Dollars in thousands)

	Three Months Ended March 31,
	2020		2019
Net (loss) income	$	(1,990)	$	29,946
Other comprehensive (loss) income, net of tax:
Unrealized holding (losses) gains during the period, net of income tax (benefit) expense of ($5,924) and $5,296.		(22,284)		19,923
Reclassification adjustment for net realized losses on investments included in net (loss) income, net of income tax benefit of $132 and $35.		498		130
Other comprehensive (loss) income, net of tax:		(21,786)		20,053
Comprehensive (loss) income	$	(23,776)	$	49,999

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

5

Safety Insurance Group, Inc. and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)

(Dollars in thousands)

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

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

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

6

Safety Insurance Group, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in thousands)

	Three Months Ended March 31,
	2020		2019
Cash flows from operating activities:
Net (loss) income	$	(1,990)	$	29,946
Adjustments to reconcile net (loss) income to net cash used for operating activities:
Investment amortization, net		1,774		777
Fixed Asset depreciation, net		1,606		1,207
Stock based compensation		1,744		1,723
(Credit) Provision for deferred income taxes		(5,927)		469
Net realized losses on investments		631		164
Net impairment losses on investments		—		220
Credit loss expense		2,510		—
Earnings from partnership investments		(1,339)		(835)
Change in net unrealized gains on equity investments		29,988		(11,801)
Changes in assets and liabilities:
Accounts receivable		3,698		1,408
Accrued investment income		(748)		(1,030)
Receivable from reinsurers		(1,685)		(16,992)
Ceded unearned premiums		4,991		437
Deferred policy acquisition costs		2,155		1,450
Taxes recoverable		1,003		—
Other assets		877		(3,849)
Loss and loss adjustment expense reserves		(1,873)		(2,957)
Unearned premium reserves		(13,928)		(4,991)
Taxes payable		543		2,196
Accounts payable and accrued liabilities		(18,748)		(17,357)
Payable to reinsurers		(10,465)		6,719
Other liabilities		(23,332)		5,084
Net cash used for operating activities		(28,515)		(8,012)
Cash flows from investing activities:
Fixed maturities purchased		(32,329)		(31,389)
Equity securities purchased		(12,095)		(5,169)
Other invested assets purchased		(3,389)		(1,750)
Proceeds from sales and paydowns of fixed maturities		33,433		33,587
Proceeds from maturities, redemptions, and calls of fixed maturities		28,909		7,260
Proceed from sales of equity securities		8,638		4,874
Proceeds from other invested assets redeemed		106		—
Fixed assets purchased		(2,977)		(1,127)
Net cash provided by investing activities		20,296		6,286
Cash flows from financing activities:
Debt		30,000		—
Dividends paid to shareholders		(14,229)		(12,964)
Acquisition of treasury stock		(10,392)		—
Net cash provided by (used for) financing activities		5,379		(12,964)
Net decrease in cash and cash equivalents		(2,840)		(14,690)
Cash and cash equivalents at beginning of year		44,407		37,582
Cash and cash equivalents at end of period	$	41,567	$	22,892

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

7

Safety Insurance Group, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands except per share and share data)

1. Basis of Presentation

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

The consolidated financial statements include Safety Insurance Group, Inc. and its subsidiaries (the “Company”). The subsidiaries consist of Safety Insurance Company, Safety Indemnity Insurance Company, Safety Property and Casualty Insurance Company, Safety Asset Management Corporation (“SAMC”), and Safety Management Corporation, which is SAMC’s holding company. All intercompany transactions have been eliminated.

The financial information for the three months ended March 31, 2020 and 2019 is unaudited; however, in the opinion of the Company, the information includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial condition, results of operations, and cash flows for the periods. The financial information as of December 31, 2019 is derived from the audited financial statements included in the Company's 2019 Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on February 28, 2020.

These unaudited interim consolidated financial statements may not be indicative of financial results for the full year and should be read in conjunction with the audited financial statements included in the Company’s 2019 Annual Report on Form 10-K filed with the SEC on February 28, 2020.

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

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

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

2. Recent Accounting Pronouncements

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

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

8

Safety Insurance Group, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands except per share and share data)

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

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

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

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

9

Safety Insurance Group, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands except per share and share data)

3. Earnings per Weighted Average Common Share

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

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

	Three Months Ended March 31,
	2020		2019
(Loss) Earnings attributable to common shareholders - basic and diluted:
Net (loss) income from continuing operations	$	(1,990)	$	29,946
Allocation of loss (income) for participating shares		10		(167)
Net (loss) income from continuing operations attributed to common shareholders	$	(1,980)	$	29,779
(Loss) Earnings per share denominator - basic and diluted
Total weighted average common shares outstanding, including participating shares		15,304,758		15,225,774
Less: weighted average participating shares		(73,974)		(84,970)
Basic (loss) earnings per share denominator		15,230,784		15,140,804
Common equivalent shares- non-vested performance stock grants		116,299		164,981
Diluted (loss) earnings per share denominator		15,347,083		15,305,785
Basic (loss) earnings per share	$	(0.13)	$	1.97
Diluted (loss) earnings per share	$	(0.13)	$	1.95
Undistributed (loss) earnings attributable to common shareholders - basic and diluted:
Net (loss) income from continuing operations attributable to common shareholders -Basic	$	(0.13)	$	1.97
Dividends declared		(0.90)		(0.80)
Undistributed (loss) earnings	$	(1.03)	$	1.17
Net (loss) income from continuing operations attributable to common shareholders -Diluted	$	(0.13)	$	1.95
Dividends declared		(0.90)		(0.80)
Undistributed (loss) earnings	$	(1.03)	$	1.15

Diluted EPS excludes non vested performance stock grants with exercise prices and exercise tax benefits greater than the average market price of the Company’s common stock during the period because their inclusion would be anti-dilutive. There were 0 anti-dilutive shares related to non vested performance stock grants for the three months ended March 31, 2020 and 2019.

4.  Share-Based Compensation

2018 Long Term Incentive Plan

On April 2, 2018, the Company’s Board of Directors adopted the Safety Insurance Group, Inc. 2018 Long-Term Incentive Plan (“the 2018 Plan”), which was subsequently approved by our shareholders at the 2018 Annual Meeting of Shareholders. The 2018 Plan enables the grant of stock awards, performance shares, cash-based performance units, other stock-based awards, stock options, stock appreciation rights, and stock unit awards, each of which may be granted separately or in tandem with other awards. Eligibility to participate includes officers, directors, employees and other individuals who provide bona fide services to the Company. The 2018 Plan supersedes the Company’s 2002 Management Omnibus Incentive Plan (“the 2002 Incentive Plan”).

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

10

Safety Insurance Group, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands except per share and share data)

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

Accounting and Reporting for Stock-Based Awards

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

Restricted Stock

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

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

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

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

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

11

Safety Insurance Group, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands except per share and share data)

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

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

(1) Includes a true-up of previously awarded performance-based restricted share awards. The updated shares were calculated based on the attainment of pre-established performance objectives and granted under the 2002 Incentive Plan.

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

5.  Investments

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

	As of March 31, 2020
	Cost or		Allowance for		Gross Unrealized				Estimated
	Amortized		Expected Credit						Fair
	Cost		Losses		Gains		Losses  (3)		Value
U.S. Treasury securities	$	1,823	$	—	$	60	$	—	$	1,883
Obligations of states and political subdivisions		224,800		—		8,924		(34)		233,690
Residential mortgage-backed securities (1)		288,122		—		12,998		(103)		301,017
Commercial mortgage-backed securities		105,678		—		3,553		(165)		109,066
Other asset-backed securities		26,659		—		63		(1,415)		25,307
Corporate and other securities		512,777		(2,510)		9,127		(24,902)		494,492
Subtotal, fixed maturity securities		1,159,859		(2,510)		34,725		(26,619)		1,165,455
Equity securities (2)		153,359		—		13,874		(17,345)		149,888
Other invested assets (4)		41,881		—		—		—		41,881
Totals	$	1,355,099	$	(2,510)	$	48,599	$	(43,964)	$	1,357,224

12

Safety Insurance Group, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands except per share and share data)

	As of December 31, 2019
	Cost or		Gross Unrealized				Estimated
	Amortized						Fair
	Cost		Gains		Losses		Value
U.S. Treasury securities	$	1,504	$	8	$	—	$	1,512
Obligations of states and political subdivisions		241,597		9,799		—		251,396
Residential mortgage-backed securities (1)		301,503		6,608		(909)		307,202
Commercial mortgage-backed securities		106,902		3,233		(397)		109,738
Other asset-backed securities		36,068		218		(64)		36,222
Corporate and other securities		504,783		18,455		(1,268)		521,970
Subtotal, fixed maturity securities		1,192,357		38,321		(2,638)		1,228,040
Equity securities (2)		151,121		27,879		(1,363)		177,637
Other invested assets (4)		37,278		—		—		37,278
Totals	$	1,380,756	$	66,200	$	(4,001)	$	1,442,955

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

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

(3) The Company’s investment portfolio included 733 and 229 securities in an unrealized loss position at March 31, 2020 and December 31, 2019, respectively.

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

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

	As of March 31, 2020
	Amortized		Estimated
	Cost		Fair Value
Due in one year or less	$	51,519	$	51,881
Due after one year through five years		295,621		287,963
Due after five years through ten years		311,755		305,990
Due after ten years through twenty years		79,555		83,326
Due after twenty years		950		906
Asset-backed securities		420,459		435,389
Totals	$	1,159,859	$	1,165,455

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

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

In the normal course of business, the Company enters into transactions involving various types of financial instruments, including investments in fixed maturities and equity securities. Investment transactions have credit

13

Safety Insurance Group, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands except per share and share data)

exposure to the extent that a counter party may default on an obligation to the Company. Credit risk is a consequence of carrying, trading and investing in securities. To manage credit risk, the Company focuses on higher quality fixed income securities, reviews the credit strength of all companies in which it invests, limits its exposure in any one investment and monitors the portfolio quality, taking into account credit ratings assigned by recognized statistical rating organizations.

The following tables as of March 31, 2020 and December 31, 2019 present the gross unrealized losses included in the Company’s investment portfolio and the fair value of those securities aggregated by investment category. The tables also present the length of time that they have been in a continuous unrealized loss position.

	As of March 31, 2020
	Less than 12 Months				12 Months or More				Total
	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
U.S. Treasury securities	$	—	$	—	$	—	$	—	$	—	$	—
Obligations of states and political subdivisions		656		34		—		—		656		34
Residential mortgage-backed securities		20,492		99		195		4		20,687		103
Commercial mortgage-backed securities		22,272		165		—		—		22,272		165
Other asset-backed securities		14,840		534		8,202		881		23,042		1,415
Corporate and other securities		233,543		23,185		8,758		1,717		242,301		24,902
Subtotal, fixed maturity securities		291,803		24,017		17,155		2,602		308,958		26,619
Equity securities		67,644		13,991		9,909		3,354		77,553		17,345
Total temporarily impaired securities	$	359,447	$	38,008	$	27,064	$	5,956	$	386,511	$	43,964

	As of December 31, 2019
	Less than 12 Months				12 Months or More				Total
	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
U.S. Treasury securities	$	—	$	—	$	—	$	—	$	—	$	—
Obligations of states and political subdivisions		—		—		—		—		—		—
Residential mortgage-backed securities		61,933		409		31,655		500		93,588		909
Commercial mortgage-backed securities		36,398		397		866		—		37,264		397
Other asset-backed securities		21,281		64		462		—		21,743		64
Corporate and other securities		26,386		481		13,718		787		40,104		1,268
Subtotal, fixed maturity securities		145,998		1,351		46,701		1,287		192,699		2,638
Equity securities		8,849		391		14,143		972		22,992		1,363
Total temporarily impaired securities	$	154,847	$	1,742	$	60,844	$	2,259	$	215,691	$	4,001

Impairments

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

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

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

14

Safety Insurance Group, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands except per share and share data)

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

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

The Company’s analysis of its fixed maturity portfolio at March 31, 2020 concluded that $2,510 of unrealized losses were due to credit factors and were recorded as credit loss expense for the three months ended March 31, 2020. The Company concluded that outside of the securities that were recognized as credit impaired, the unrealized losses recorded on the fixed maturity portfolio at March 31, 2020 resulted from fluctuations in market interest rates and other temporary market conditions as opposed to fundamental changes in the credit quality of the issuers of such securities. Based upon the analysis performed, the Company’s decision to hold these securities, the Company’s current level of liquidity and our history of positive operating cash flows, management believes it is more likely than not that it will not be required to sell any of its securities before the anticipated recovery in the fair value to its amortized cost basis.

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

The Company holds 0 subprime mortgage debt securities.  All of the Company’s holdings in mortgage-backed securities are either U.S. Government or Agency guaranteed or are rated investment grade by either Moody’s or Standard & Poor’s.

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

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

15

Safety Insurance Group, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands except per share and share data)

Net Investment Income

The components of net investment income were as follows:

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

Fair Value of Financial Instruments

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

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

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

Level 3 — Valuations based on unobservable inputs.

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

16

Safety Insurance Group, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands except per share and share data)

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

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

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

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

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

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

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

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

In order to ensure the fair value determination is representative of an exit price (consistent with ASC 820), the Company’s procedures for validating quotes or prices obtained from third parties include, but are not limited to, obtaining a minimum of two price quotes for each fixed maturity security if possible, as discussed above, the periodic testing of sales activity to determine if there are any significant differences between the market price used to value the security as of the balance sheet date and the sales price of the security for sales that occurred around the balance sheet date, and the periodic review of reports provided by its external investment manager regarding those securities with

17

Safety Insurance Group, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands except per share and share data)

ratings changes and securities placed on its “Watch List.” In addition, valuation techniques utilized by pricing services and prices obtained from external sources are reviewed by the Company’s external investment manager, whose investment professionals are familiar with the securities being priced and the markets in which they trade, to ensure the fair value determination is representative of an exit price (consistent with ASC 820).

All unadjusted estimates of fair value for our fixed maturities priced by the pricing services as described above are included in the amounts disclosed in Level 2. With the exception of the FHLB-Boston security, which is categorized as a Level 3 security, the Company’s entire portfolio was priced based upon quoted market prices or other observable inputs as of March 31, 2020. There were no significant changes to the valuation process during the three months ended March 31, 2020. As of March 31, 2020 and December 31, 2019, no quotes or prices obtained were adjusted by management. All broker quotes obtained were non-binding.

At March 31, 2020 and December 31, 2019, investments in fixed maturities classified as available-for-sale had a fair value which equaled carrying value $1,165,455 and $1,228,040, respectively. We have 0 short-term investments. The carrying values of cash and cash equivalents and investment income accrued approximated fair value.

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

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

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

There were 0 transfers between Level 1 and Level 2 during the three months ended March 31, 2020 and 2019.

18

Safety Insurance Group, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands except per share and share data)

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

	Three Months Ended March 31,
	2020		2019
	Level 3		Level 3
	Fair Value		Fair Value
	Securities		Securities
Balance at beginning of period	$	516	$	680
Net gains and losses included in earnings		—		—
Net gains included in other comprehensive income		—		—
Purchases		1,170		—
Sales		—		(297)
Transfers into Level 3		—		—
Transfers out of Level 3		—		—
Balance at end of period	$	1,686	$	383
Amount of total losses included in earnings attributable to the change in unrealized losses related to assets still held at end of period	$	—	$	—

Transfers in and out of Level 3 are attributable to changes in the ability to observe significant inputs in determining fair value exit pricing. As noted in the table above, 0 transfers were made in or out of Level 3 during the three months ended March 31, 2020 and 2019. The Company held 1 Level 3 security at March 31, 2020 and March 31, 2019.

As of March 31, 2020 and December 31, 2019, there were approximately $32,806 and $32,760, respectively, in a real estate investment trust (“REIT”). The REIT is excluded from the fair value hierarchy because the fair value is recorded using the net asset value per share practical expedient. The net asset value per share of this REIT is derived from member ownership in the capital venture to which a proportionate share of independently appraised net assets is attributed. The fair value was determined using the trust’s net asset value obtained from its audited financial statements. The Company is required to submit a request 45 days before a quarter end to dispose of the security.

6.  Allowance for Expected Credit Losses

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

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

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

The following table presents the balances of premiums receivable, net of the allowance for expected credit losses, at March 31, 2020 and January 1, 2020, and changes in the allowance for expected credit losses for the three months ended March 31, 2020.

19

Safety Insurance Group, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands except per share and share data)

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

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

The majority of the Company’s reinsurance recoverable on paid and unpaid losses is a result of our participation as a servicing carrier in the CAR Commercial Automobile Program and the Taxi/Limo Program, which represents 97% of the total reinsurance recoverable on paid and unpaid losses at March 31, 2020. The remaining 3% of amounts due from reinsurers are related to our other excess of loss and quota share contracts. For amounts due under these contracts, the Company utilizes updated A.M. Best credit ratings on a quarterly basis to determine the allowance for expected credit losses. As of March 31, 2020, all reinsurers under these programs are rated “A” or better by A.M. Best. Certain of the Company's reinsurance recoverables are collateralized by letters of credit, funds held or trust agreements. The Company’s analysis concludes that there are 0 expected credit losses at March 31, 2020.

20

Safety Insurance Group, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands except per share and share data)

7.  Loss and Loss Adjustment Expense Reserves

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

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

At the end of each period, the reserves were re-estimated for all prior accident years. The Company’s prior year reserves decreased by $9,584 and $11,980 for the three months ended March 31, 2020 and 2019, respectively, and resulted from re-estimations of prior years ultimate loss and LAE liabilities. The decreases in prior years reserves during the three months ended March 31, 2020 and 2019 are primarily composed of reductions in our retained automobile and retained homeowners lines reserves.

The Company's automobile lines of business reserves decreased for the three months ended March 31, 2020 and 2019, primarily due to fewer incurred but not yet reported claims than previously estimated and better than previously estimated severity on the Company’s established bodily injury and property damage case reserves. Due to the nature of the risks that the Company underwrites and has historically underwritten, management does not believe that it has an exposure to asbestos or environmental pollution liabilities.

8.  Commitments and Contingencies

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

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

21

Safety Insurance Group, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands except per share and share data)

9.  Debt

On the August 10, 2018, the Company extended its Revolving Credit Agreement (the “Credit Agreement”) with Citizens Bank, N.A. (formerly known as RBS Citizens, N.A. (“Citizens Bank”)) to a maturity date of August 10, 2023. The Credit Agreement provides a $30,000 revolving credit facility with an accordion feature allowing for future expansion of the committed amount up to $50,000. Loans under the credit facility bear interest at the Company’s option at either (i) the LIBOR rate plus 1.25% per annum or (ii) the higher of Citizens Bank prime rate or 0.5% above the federal funds rate plus 1.25% per annum. Interest only is payable prior to maturity.

The Company’s obligations under the credit facility are secured by pledges of its assets and the capital stock of its operating subsidiaries. The credit facility is guaranteed by the Company’s non-insurance company subsidiaries. The credit facility contains covenants including requirements to maintain minimum risk-based capital ratios and statutory surplus of Safety Insurance Company as well as limitations or restrictions on indebtedness, liens, and other matters. As of March 31, 2020, the Company was in compliance with all covenants. In addition, the credit facility includes customary events of default, including a cross-default provision permitting the lenders to accelerate the facility if the Company (i) defaults in any payment obligation under debt having a principal amount in excess of $10,000 or (ii) fails to perform any other covenant permitting acceleration of all such debt.

The Company had 0 amounts outstanding on its credit facility at March 31, 2020 and December 31, 2019. The credit facility commitment fee included in interest expense was computed at a rate of 0.25% per annum on the $30,000 commitment at March 31, 2020 and 2019.

The Company is a member of the FHLB-Boston. Membership in the FHLB-Boston allows the Company to borrow money at competitive interest rates provided the loan is collateralized by specific U.S. Government residential mortgage backed securities. At March 31, 2020, the Company has the ability to borrow $283,999 using eligible invested assets that would be used as collateral.

On March 17, 2020, the Company borrowed $30,000 from the FHLB-Boston for a term of five-years, bearing interest at a rate of 1.42%. Interest is payable monthly and the principal is due on the maturity date of March 17, 2025 but may be prepaid in whole or in part by the Company in advance with a minor penalty for prepayment. The loan is fully collateralized by specific U.S. Government residential mortgage backed securities. The Company had 0 amounts outstanding from the FHLB-Boston at December 31, 2019.

Interest expense on the FHLB-Boston borrowing was $18 for the three months ended March 31, 2020. There was 0 interest expense for the three months ended March 31, 2019.

10. Income Taxes

Federal income tax expense for the three months ended March 31, 2020 and 2019 has been computed using estimated effective tax rates.  These rates are revised, if necessary, at the end of each successive interim period to reflect the current estimates of the annual effective tax rates. The effective rate in 2020 is higher than the statutory rate due to the tax benefit related to the impact of stock-based compensation which increased the tax benefit during three months ended March 31, 2020.

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

22

Safety Insurance Group, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands except per share and share data)

During the three months ended March 31, 2020, there were no material changes to the amount of the Company’s unrecognized tax benefits or to any assumptions regarding the amount of its ASC 740 liability.

All tax years prior to 2016 are closed. There are no current examinations ongoing.

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

11. Share Repurchase Program

On August 3, 2007, the Board of Directors approved a share repurchase program of up to $30,000 of the Company’s outstanding common shares. The Board of Directors had cumulatively authorized increases to the existing share repurchase program of up to $150,000 of its outstanding common shares.  Under the program, the Company may repurchase shares of its common stock for cash in public or private transactions, in the open market or otherwise.  The timing of such repurchases and actual number of shares repurchased will depend on a variety of factors including price, market conditions and applicable regulatory and corporate requirements.  The program does not require the Company to repurchase any specific number of shares and it may be modified, suspended or terminated at any time without prior notice.

During the three months ended March 31, 2020, the Company purchased 143,292 shares on the open market under the program at a cost of $10,392. NaN share purchases were made by the Company under the program during the three months ended March 31, 2019. As of March 31, 2020, the Company has purchased 2,422,862 shares at a cost of $94,227. As of December 31, 2019, the Company had purchased 2,279,570 shares at a cost of $83,835.

12. Leases

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

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

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

	Three Months Ended March 31,
		2020		2019
Operating lease cost	$	1,151	$	1,154

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Safety Insurance Group, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands except per share and share data)

Other information related to leases was as follows:

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

Maturities of lease liabilities were as follows:

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

13. Subsequent Events

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

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Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

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

Executive Summary and Overview

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

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

A.M. Best, which rates insurance companies based on factors of concern to policyholders, currently assigns Safety Insurance an "A (Excellent)" rating. Our "A" rating was reaffirmed by A.M. Best on May 5, 2020.

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

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

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Recent Trends and Events

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

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

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

On March 17, 2020, the Company borrowed $30,000 from the FHLB-Boston out of an abundance of caution due to market uncertainty caused by COVID-19, for a term of five years, bearing interest at a rate of 1.42%. Interest is payable monthly and the principal is due on the maturity date of March 17, 2025 but may be prepaid in whole or in part by the Company in advance. The loan is fully collateralized by specific U.S. Government residential mortgage backed securities. The cash is still held at March 31, 2020 and is presented as an offset to the Other Liabilities financial statement line-item, which represents outstanding claim checks.

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

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

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

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

Insurance Ratios

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

Our GAAP insurance ratios are outlined in the following table.

	Three Months Ended March 31,
	2020		2019
GAAP ratios:
Loss ratio	61.0	%	64.8	%
Expense ratio	31.9		31.1
Combined ratio	92.9	%	95.9	%

Share-Based Compensation

On April 2, 2018, the Company’s Board of Directors adopted the Safety Insurance Group, Inc. 2018 Long-Term Incentive Plan (“the 2018 Plan”), which was subsequently approved by our shareholders at the 2018 Annual Meeting of Shareholders. The 2018 Plan enables the grant of stock awards, performance shares, cash based performance units, other stock based awards, stock options, stock appreciation rights, and stock unit awards, each of which may be granted separately of in tandem with other awards. Eligibility to participate includes officers, directors, employees and other individuals who provide bona fide services to the Company. The 2018 Plan supersedes the Company’s 2002 Management Omnibus Incentive Plan (“the 2002 Incentive Plan”).

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

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

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

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

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

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

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

(4) The shares represent a true-up of previously awarded performance-based restricted share awards. The updated shares were calculated based on the attainment of pre-established performance objectives and granted under the 2002 Incentive Plan.

Reinsurance

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

We maintain reinsurance coverage to help lessen the effect of losses from catastrophic events, maintaining coverage during 2020 that protects us in the event of a "137-year storm" (that is, a storm of a severity expected to occur once in a 137-year period). We use various software products to measure our exposure to catastrophe losses and the probable maximum loss to us for catastrophe losses such as hurricanes. The models include estimates for our share of the catastrophe losses generated in the residual market for property insurance by the Massachusetts Property Insurance Underwriting Association ("FAIR Plan").

For 2020, we have purchased four layers of excess catastrophe reinsurance providing $615,000 of coverage for property losses in excess of $50,000 up to a maximum of $665,000. Our reinsurers’ co-participation is 50.0% of $50,000 for the 1st layer, 80.0% of $50,000 for the 2nd layer, 80.0% of $250,000 for the 3rd layer and 80.0% of $265,000 for the 4th layer.

We also have casualty excess of loss reinsurance for large casualty losses occurring in our automobile, homeowners, dwelling fire, business owners, and commercial package lines of business in excess of $2,000 up to a maximum of $10,000. We have property excess of loss reinsurance coverage for large property losses, with coverage in excess of $2,000 up to a maximum of $20,760, for our homeowners, business owners, and commercial package policies. In addition, we have liability excess of loss reinsurance for umbrella large losses in excess of $1,000 up to a maximum of $10,000. We also have various reinsurance agreements with Hartford Steam Boiler Inspection and Insurance Company, of which the primary contract is a quota share agreement under which we cede 100% of the premiums and losses for the equipment breakdown coverage under our business owner policies and commercial package policies.

We are a participant in CAR, a state-established body that runs the residual market reinsurance programs for commercial automobile insurance in Massachusetts under which premiums, expenses, losses and loss adjustment expenses on ceded business are shared by all insurers writing automobile insurance in Massachusetts. We also participate in the FAIR Plan in which premiums, expenses, losses and loss adjustment expenses on homeowners business

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

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

Effects of Inflation

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

Non-GAAP Measures

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

Non-GAAP operating income and non-GAAP operating income per diluted share consist of our GAAP net income adjusted by the net realized losses on investments, net impairment losses on investments, changes in net unrealized gains on equity investments, credit loss expense and taxes related thereto. Net income and earnings per diluted share are the GAAP financial measures that are most directly comparable to non-GAAP operating income and non-GAAP operating income per diluted share, respectively. A reconciliation of the GAAP financial measures to these non-GAAP measures is included in the financial highlights below.

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Results of Operations

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

The following table shows certain of our selected financial results.

	Three Months Ended March 31,
	2020		2019
Direct written premiums	$	197,346	$	203,387
Net written premiums	$	188,958	$	189,938
Net earned premiums	$	197,895	$	194,491
Net investment income		10,710		11,751
Earnings from partnership investments		1,339		835
Net realized losses on investments		(631)		(164)
Change in net unrealized gains on equity investments		(29,988)		11,801
Net impairment losses on investments		—		(220)
Credit loss expense		(2,510)		—
Finance and other service income		4,229		4,085
Total revenue		181,044		222,579
Loss and loss adjustment expenses		120,746		126,027
Underwriting, operating and related expenses		63,082		60,434
Interest expense		47		22
Total expenses		183,875		186,483
(Loss) income before income taxes		(2,831)		36,096
Income tax (benefit) expense		(841)		6,150
Net (loss) income	$	(1,990)	$	29,946
(Loss) earnings per weighted average common share:
Basic	$	(0.13)	$	1.97
Diluted	$	(0.13)	$	1.95
Cash dividends paid per common share	$	0.90	$	0.80
Reconciliation of Net (Loss) Income to Non-GAAP Operating Income:
Net (loss) income	$	(1,990)	$	29,946
Exclusions from net income:
Net realized losses on investments		631		164
Change in net unrealized gains on equity investments		29,988		(11,801)
Net impairment losses on investments		-		220
Credit loss expense		2,510		-
Income tax (benefit) expense on exclusions from net income		(6,957)		2,398
Non-GAAP Operating income	$	24,182	$	20,927
Net (loss) income per diluted share	$	(0.13)	$	1.95
Exclusions from net income:
Net realized losses on investments		0.04		0.01
Change in net unrealized gains on equity investments		1.95		(0.77)
Net impairment losses on investments		-		0.01
Credit loss expense		0.16		-
Income tax (benefit) expense on exclusions from net income		(0.45)		0.16
Non-GAAP Operating income per diluted share	$	1.57	$	1.36

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

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

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

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

	Three Months Ended March 31,
	2020		2019
Written Premiums
Direct	$	197,346	$	203,387
Assumed		7,978		8,245
Ceded		(16,366)		(21,694)
Net written premiums	$	188,958	$	189,938
Earned Premiums
Direct	$	210,151	$	207,308
Assumed		9,102		9,315
Ceded		(21,358)		(22,132)
Net earned premiums	$	197,895	$	194,491

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

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

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

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

	As of March 31, 2020
	Cost or		Allowance for		Gross Unrealized		Estimated		Estimated
	Amortized		Expected Credit						Fair
	Cost		Losses		Gains		Losses  (3)		Value
U.S. Treasury securities	$	1,823	$	—	$	60	$	—	$	1,883
Obligations of states and political subdivisions		224,800		—		8,924		(34)		233,690
Residential mortgage-backed securities (1)		288,122		—		12,998		(103)		301,017
Commercial mortgage-backed securities		105,678		—		3,553		(165)		109,066
Other asset-backed securities		26,659		—		63		(1,415)		25,307
Corporate and other securities		512,777		(2,510)		9,127		(24,902)		494,492
Subtotal, fixed maturity securities		1,159,859		(2,510)		34,725		(26,619)		1,165,455
Equity securities (2)		153,359		—		13,874		(17,345)		149,888
Other invested assets (4)		41,881		—		—		—		41,881
Totals	$	1,355,099	$	(2,510)	$	48,599	$	(43,964)	$	1,357,224

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

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

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

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

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

	As of March 31, 2020
		Estimated
		Fair Value	Percent
U.S. Treasury securities and obligations of U.S. Government agencies	$	316,382	27.1	%
Aaa/Aa		286,174	24.6
A		236,953	20.3
Baa		168,409	14.5
Ba		58,852	5.0
B		73,237	6.3
Caa/Ca		3,376	0.3
Not rated		22,072	1.9
Total	$	1,165,455	100.0	%

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

As of March 31, 2020, our portfolio of fixed maturity investments was comprised principally of investment grade corporate fixed maturity securities, U.S. government and agency securities, and asset-backed securities. The portion of our non-investment grade portfolio of fixed maturity investments is primarily comprised of variable rate secured and senior bank loans and high yield bonds.

The following table illustrates the gross unrealized losses included in our investment portfolio and the fair value of those securities, aggregated by investment category. The table also illustrates the length of time that they have been in a continuous unrealized loss position as of March 31, 2020.

	As of March 31, 2020
	Less than 12 Months				12 Months or More				Total
	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
U.S. Treasury securities	$	—	$	—	$	—	$	—	$	—	$	—
Obligations of states and political subdivisions		656		34		—		—		656		34
Residential mortgage-backed securities		20,492		99		195		4		20,687		103
Commercial mortgage-backed securities		22,272		165		—		—		22,272		165
Other asset-backed securities		14,840		534		8,202		881		23,042		1,415
Corporate and other securities		233,543		23,185		8,758		1,717		242,301		24,902
Subtotal, fixed maturity securities		291,803		24,017		17,155		2,602		308,958		26,619
Equity securities		67,644		13,991		9,909		3,354		77,553		17,345
Total temporarily impaired securities	$	359,447	$	38,008	$	27,064	$	5,956	$	386,511	$	43,964

The Company’s analysis of its fixed maturity portfolio at March 31, 2020 concluded that $2,510 of unrealized losses were due to credit factors and were recorded as credit loss expense for the three months ended March 31, 2020. The Company concluded that outside of the securities that were recognized as credit impaired, the unrealized losses recorded on the fixed maturity portfolio at March 31, 2020 resulted from fluctuations in market interest rates and other temporary market conditions as opposed to fundamental changes in the credit quality of the issuers of such securities. Based upon the analysis performed, the Company’s decision to hold these securities, the Company’s current level of liquidity and our history of positive operating cash flows, management believes it is more likely than not that it will not be required to sell any of its securities before the anticipated recovery in the fair value to its amortized cost basis.

During the three months ended March 31, 2019, the company recognized $220 in 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.

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

Finance and Other Service Income. Finance and other service income includes revenues from premium installment charges, which we recognize when earned, and other miscellaneous income and fees. Finance and other service income for the three months ended March 31, 2020 increased by $144, or 3.5%, to $4,229 from $4,085 for the comparable 2019 period.

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

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

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

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

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

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

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

Liquidity and Capital Resources

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

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

Net cash used for operating activities was $28,515 and $8,012 during the three months ended March 31, 2020 and 2019, respectively. Our operations typically generate positive cash flows from operations as most premiums are received in advance of the time when claim and benefit payments are required. Net cash used for operating activities during the three months ended March 31, 2020 and March 31, 2019 was the result of the timing of expense payments and changes in other liabilities which is driven by the reclassification of cash to offset outstanding claims checks. Positive operating cash flows are expected in the future to meet our liquidity requirements.

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

Net cash provided by financing activites was $5,379 during the three months ended March 31, 2020 compared to net cash used for financing activities of $12,964 during the three months ended March 31, 2019. On March 17, 2020, the Company borrowed $30,000 from the FHLB-Boston for a term of five years, bearing interest at a rate of 1.42%. Interest is payable monthly and the principal is due on the maturity date of March 17, 2025 but may be prepaid in whole or in part by the Company in advance. The proceeds from this borrowing were partially offset by dividend payments to shareholders and share buybacks during the three months ended March 31, 2010. Net cash used for financing activities during the three months ended March 31, 2019 is comprised of dividend payments to shareholders.

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

Credit Facility

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

Recent Accounting Pronouncements

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

Regulatory Matters

Our Insurance Subsidiaries are subject to various regulatory restrictions that limit the maximum amount of dividends available to be paid to their parent without prior approval of the Commissioner of the Division of Insurance of Massachusetts. The Massachusetts statute limits the dividends an insurer may pay in any twelve-month period, without the prior permission of the Commissioner, to the greater of (i) 10% of the insurer’s surplus as of the preceding December 31 or (ii) the insurer’s net income for the twelve-month period ending the preceding December 31, in each case determined in accordance with statutory accounting practices. Our insurance company subsidiaries may not declare an “extraordinary dividend” (defined as any dividend or distribution that, together with other distributions made within the preceding twelve months, exceeds the limits established by Massachusetts statute) until thirty days after the Commissioner has received notice of the intended dividend and has not objected. As historically administered by the Commissioner, this provision requires the Commissioner’s prior approval of an extraordinary dividend. Under

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Massachusetts law, an insurer may pay cash dividends only from its unassigned funds, also known as earned surplus, and the insurer’s remaining surplus must be both reasonable in relation to its outstanding liabilities and adequate to its financial needs. At December 31, 2019, the statutory surplus of Safety Insurance was $704,177, and its statutory net income for 2019 was $75,469. As a result, a maximum of $75,469 is available in 2020 for such dividends without prior approval of the Commissioner. As a result of this Massachusetts statute, the Insurance Subsidiaries had restricted net assets in the amount of $628,708 at December 31, 2019. During the three months ended March 31, 2020, Safety Insurance paid dividends to Safety of $12,961.

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

Since the initial public offering of its common stock in November 2002, the Company has paid regular quarterly dividends to shareholders of its common stock. Quarterly dividends paid during 2020 were as follows:

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

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

On August 3, 2007, the Board of Directors approved a share repurchase program of up to $30,000 of the Company’s outstanding common shares.  As of March 31, 2020, the Board of Directors had cumulatively authorized increases to the existing share repurchase program of up to $150,000 of its outstanding common shares.  Under the program, the Company may repurchase shares of its common stock for cash in public or private transactions, in the open market or otherwise.  The timing of such repurchases and actual number of shares repurchased will depend on a variety of factors including price, market conditions and applicable regulatory and corporate requirements.  The program does not require us to repurchase any specific number of shares and may be modified, suspended or terminated at any time without prior notice. As of March 31, 2020, the Company had purchased 2,422,862 shares of common stock at a cost of $94,227. As of December 31, 2019, the Company had purchased 2,279,570 shares of common stock at a cost of $83,835.

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

Risk-Based Capital Requirements

The NAIC has adopted a formula and model law to implement risk-based capital requirements for most property and casualty insurance companies, which are designed to determine minimum capital requirements and to raise the level of protection that statutory surplus provides for policyholder obligations. Under Massachusetts law, insurers having less total adjusted capital than that required by the risk-based capital calculation will be subject to varying degrees of regulatory action, depending on the level of capital inadequacy. The risk-based capital law provides for four levels of regulatory action. The extent of regulatory intervention and action increases as the level of total adjusted capital to risk-based capital falls. As of December 31, 2019, the Insurance Subsidiaries had total adjusted capital of $704,177, which is in excess of amounts requiring company or regulatory action at any prescribed risk-based capital

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

Off-Balance Sheet Arrangements

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

Critical Accounting Policies and Estimates

Loss and Loss Adjustment Expense Reserves

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

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

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

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

In estimating all our loss reserves, we follow the guidance prescribed by Accounting Standards Codification (“ASC”) 944, Financial Services – Insurance.

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

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

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

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

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

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

Such techniques assume that past experience, adjusted for the effects of current developments and anticipated trends, is an appropriate basis for predicting our ultimate losses, total reserves, and resulting IBNR reserves. It is possible that the final outcome may fall above or below these amounts as a result of a number of factors, including immature data, sparse data, or significant growth in a line of business. Using these methodologies our actuaries established a range of reasonably possible estimations for net reserves of approximately $453,696 to $504,483 as of March 31, 2020. In general, the low and high values of the ranges represent reasonable minimum and maximum values of the indications based on the techniques described above. Our selected point estimate of net loss and LAE reserves based upon the analysis of our actuaries was $487,356 as of March 31, 2020.

The following table presents the point estimation of the recorded reserves and the range of estimations by line of business for net loss and LAE reserves as of March 31, 2020.

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

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The following table presents our total net reserves and the corresponding case reserves and IBNR reserves for each line of business as of March 31, 2020.

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

At March 31, 2020, our total IBNR reserves for our private passenger automobile line of business was comprised of ($65,975) related to estimated ultimate decreases in the case reserves, including anticipated recoveries (i.e. salvage and subrogation), and $19,846 related to our estimation for not yet reported losses.

Our IBNR reserves consist of our estimate of the total loss reserves required less our case reserves.  The IBNR reserves for CAR assumed commercial automobile business are 46.6% of our total reserves for CAR assumed commercial automobile business as of March 31, 2020, due to the reporting delays in the information we receive from CAR, as described further in the section on Residual Market Loss and Loss Adjustment Expense Reserves.  Our IBNR reserves for FAIR Plan assumed homeowners are 64.6% of our total reserves for FAIR Plan assumed homeowners at March 31, 2020, due to similar reporting delays in the information we receive from FAIR Plan.

The following table presents information by line of business for our total net reserves and the corresponding retained (i.e. direct less ceded) reserves and assumed reserves as of March 31, 2020.

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

Residual Market Loss and Loss Adjustment Expense Reserves

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

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

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

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

Sensitivity Analysis

Establishment of appropriate reserves is an inherently uncertain process. There can be no certainty that currently established reserves based on our key assumptions regarding frequency and severity in our lines of business, or our assumptions regarding our share of the CAR loss will prove adequate in light of subsequent actual experience. To the extent that reserves are inadequate and are strengthened, the amount of such increase is treated as a charge to earnings in the period that the deficiency is recognized. To the extent that reserves are redundant and are released, the amount of the release is a credit to earnings in the period the redundancy is recognized.  For the three months ended March 31, 2020, a 1 percentage-point change in the loss and LAE ratio would result in a change in reserves of $1,979. Each 1 percentage-point change in the loss and loss expense ratio would have had a $1,564 effect on net income, or $0.10 per diluted share.

Our assumptions consider that past experience, adjusted for the effects of current developments and anticipated trends, are an appropriate basis for establishing our reserves. Our individual key assumptions could each have a reasonable possible range of plus or minus 5 percentage-points for each estimation, although there is no guarantee that our assumptions will not have more than a 5 percentage point variation.  The following sensitivity tables present information for each of our primary lines of business on the effect each 1 percentage-point change in each of our key assumptions on unpaid frequency and severity could have on our retained (i.e., direct minus ceded) loss and LAE reserves and net income for the three months ended March 31, 2020. In evaluating the information in the table, it should be noted that a 1 percentage-point change in a single assumption would change estimated reserves by 1 percentage-point. A 1 percentage-point change in both our key assumptions would change estimated reserves within a range of plus or minus 2 percentage-points.

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	-1 Percent		No		+1 Percent
	Change in		Change in		Change in
	Frequency		Frequency		Frequency
Private passenger automobile retained loss and LAE reserves
-1 Percent Change in Severity
Estimated decrease in reserves	$	(3,958)	$	(1,979)	$	—
Estimated increase in net income		3,127		1,563		—
No Change in Severity
Estimated (decrease) increase in reserves		(1,979)		—		1,979
Estimated increase (decrease) in net income		1,563		—		(1,563)
+1 Percent Change in Severity
Estimated increase in reserves		—		1,979		3,958
Estimated decrease in net income		—		(1,563)		(3,127)
Commercial automobile retained loss and LAE reserves
-1 Percent Change in Severity
Estimated decrease in reserves		(1,329)		(665)		—
Estimated increase in net income		1,050		525		—
No Change in Severity
Estimated (decrease) increase in reserves		(665)		—		665
Estimated increase (decrease) in net income		525		—		(525)
+1 Percent Change in Severity
Estimated increase in reserves		—		665		1,329
Estimated decrease in net income		—		(525)		(1,050)
Homeowners retained loss and LAE reserves
-1 Percent Change in Severity
Estimated decrease in reserves		(1,654)		(827)		—
Estimated increase in net income		1,307		653		—
No Change in Severity
Estimated (decrease) increase in reserves		(827)		—		827
Estimated increase (decrease) in net income		653		—		(653)
+1 Percent Change in Severity
Estimated increase in reserves		—		827		1,654
Estimated decrease in net income		—		(653)		(1,307)
All other retained loss and LAE reserves
-1 Percent Change in Severity
Estimated decrease in reserves		(1,834)		(917)		—
Estimated increase in net income		1,449		724		—
No Change in Severity
Estimated (decrease) increase in reserves		(917)		—		917
Estimated increase (decrease) in net income		724		—		(724)
+1 Percent Change in Severity
Estimated increase in reserves		—		917		1,834
Estimated decrease in net income		—		(724)		(1,449)

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

The following sensitivity table presents information of the effect each 1 percentage-point change in our assumptions on our share of reserves for CAR and other residual markets could have on our assumed loss and LAE reserves and net income for the three months ended March 31, 2020. In evaluating the information in the table, it should be noted that a 1 percentage-point change in our assumptions would change estimated reserves by 1 percentage-point.

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

Reserve Development Summary

The changes we have recorded in our reserves in the past illustrate the uncertainty of estimating reserves. Our prior year reserves decreased by $9,584 and $11,980 during the three months ended March 31, 2020 and 2019, respectively.

The following table presents a comparison of prior year development of our net reserves for losses and LAE for the three months ended March 31, 2020 and 2019. Each accident year represents all claims for an annual accounting period in which loss events occurred, regardless of when the losses are actually reported, booked or paid.  Our financial statements reflect the aggregate results of the current and all prior accident years.

	Three Months Ended March 31,
Accident Year	2020		2019
2010 & prior	$	(125)	$	(244)
2011		(100)		(57)
2012		(396)		(311)
2013		1		(742)
2014		(525)		(1,074)
2015		(875)		(1,568)
2016		(2,442)		(3,245)
2017		(1,949)		(4,385)
2018		(2,238)		(354)
2019		(935)		—
All prior years	$	(9,584)	$	(11,980)

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

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The following table presents information by line of business for prior year development of our net reserves for losses March 31, 2020.

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

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

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

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

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

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

The improved retained private passenger and commercial automobile results were primarily due to fewer IBNR claims than previously estimated and better than previously estimated severity on our established bodily injury and

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property damage case reserves. Our retained other than auto and homeowners line of business prior year reserves decreased, due primarily to fewer IBNR claims than previously estimated.

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

Investment Impairments.

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, requiring as the standard requires a new impairment model based on expected credit losses rather than incurred credit losses. Under the new guidance, an entity recognizes its estimate of expected credit losses through an allowance account.

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

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

Forward-Looking Statements

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

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

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

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

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

● Legal and regulatory commentary

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

● Future performance of credit markets.

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

Forward-looking statements are not guarantees of future performance. By their nature, forward-looking statements are subject to risks and uncertainties. There are a number of factors, many of which are beyond our control,

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that could cause actual future conditions, events, results or trends to differ significantly and/or materially from historical results or those projected in the forward-looking statements. These factors include but are not limited to:

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

● Conditions for business operations and restrictive regulations in Massachusetts;

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

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

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

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

● The effects of emerging claim and coverage issues on the Company’s business are uncertain, and court decisions or legislative or regulatory changes that take place after the Company issues its policies, including those taken in response to COVID-19 (such as requiring insurers to cover business interruption claims irrespective of terms or other conditions included in the policies that would otherwise preclude coverage), can result in an unexpected increase in the number of claims and have a material adverse impact on the Company's results of operations;

● The impact of COVID-19 and related risks, including on the Company's employees, agents or other key partners, could materially affect the Company's results of operations, financial position and/or liquidity; and

● Other risks and factors identified from time to time in our reports filed with the SEC.  Refer to Part I, Item 1A — Risk Factors of our 2019 Annual Report on Form 10-K for the year ended December 31, 2019.

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

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

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

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

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

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

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

		-100 Basis				+100 Basis
		Point Change		No Change		Point Change
As of March 31, 2020
Estimated fair value	$	1,202,375	$	1,165,455	$	1,126,621
Estimated increase (decrease) in fair value	$	36,920	$	—	$	(38,834)

With respect to floating rate debt, we are exposed to the effects of changes in prevailing interest rates. At March 31, 2020, we had no debt outstanding under our credit facility. Assuming the full utilization of our current available credit facility, a 2.0% increase in the prevailing interest rate on our variable rate debt would result in interest expense increasing approximately $600 for 2020, assuming that all of such debt is outstanding for the entire year.

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

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

Item 4.     Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), we evaluated the effectiveness of the design and operation of our disclosure controls and procedures [as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)] as of the end of the period covered by this report. Based on that evaluation, our CEO and CFO have concluded that our disclosure controls and procedures are adequate and effective and ensure that all information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded,

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processed, summarized and reported within the time periods specified in the SEC’s rules and that information required to be disclosed in such reports is accumulated and communicated to management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures.

Changes in Internal Control over Financial Reporting

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

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Part II. OTHER INFORMATION

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

Item 1A.  Risk Factors

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

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

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

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

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

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

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

On August 3, 2007, the Board of Directors approved a share repurchase program of up to $30,000 of the Company’s outstanding common shares.  The Board of Directors had cumulatively authorized increases to the existing share repurchase program of up to $150,000 of its outstanding common shares.  Under the program, the Company may repurchase shares of its common stock for cash in public or private transactions, in the open market or otherwise.  The timing of such repurchases and actual number of shares repurchased will depend on a variety of factors including price, market conditions and applicable regulatory and corporate requirements.  The program does not require the Company to repurchase any specific number of shares and it may be modified, suspended or terminated at any time without prior notice. During the three months ended March 31, 2020, the Company purchased 143,292 shares on the open market under the program at a cost of $10,392.

Item 3.   Defaults upon Senior Securities - None.

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Item 4.   Mine Safety Disclosures — None.

Item 5.  Other Information - None.

Item 6.  Exhibits - The exhibits are contained herein as listed in the Exhibit Index.

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SAFETY INSURANCE GROUP, INC.

EXHIBIT INDEX

Exhibit
Number	Description
3.2.1 11.0	Amended and Restated Bylaws of Safety Insurance Group, Inc.(2) Statement re: Computation of Per Share Earnings (1)
31.1	CEO Certification Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes Oxley Act of 2002(2)
31.2	CFO Certification Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes Oxley Act of 2002(2)
32.1	CEO Certification Pursuant to U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes Oxley Act of 2002(2)
32.2	CFO Certification Pursuant to U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes Oxley Act of 2002(2)
101.INS	Inline XBRL Instance Document(2)
101.SCH	Inline XBRL Taxonomy Extension Schema(2)
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase(2)
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase(2)
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase(2)
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase(2)
104	The cover page from this Current Report on form 10-Q, formatted in Inline XBRL(2)

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

(2) Included herein.

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SIGNATURE

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

May 8, 2020	SAFETY INSURANCE GROUP, INC.  (Registrant)
	By:	/s/ CHRISTOPHER T. WHITFORD
		Christopher T. Whitford
		Vice President, Chief Financial Officer, Secretary and Principal Accounting Officer

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