ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our accompanying consolidated financial statements and notes thereto, which appear elsewhere in this document. In this discussion, all dollar amounts are presented in thousands, except share and per share data.
The following discussion contains forward-looking statements. We intend statements which are not historical in nature to be and are hereby identified as “forward-looking statements” to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In addition, the Company’s senior management may make forward-looking statements orally to analysts, investors, the media and others. This safe harbor requires that we specify important factors that could cause actual results to differ materially from those contained in forward-looking statements made by or on behalf of us. We cannot promise that our expectations in such forward-looking statements will turn out to be correct. Our actual results could be materially different from and worse than our expectations. See “Forward-Looking Statements” below for specific important factors that could cause actual results to differ materially from those contained in forward-looking statements.
Executive Summary and Overview
In this discussion, “Safety” refers to Safety Insurance Group, Inc. and “our Company,” “we,” “us” and “our” refer to Safety Insurance Group, Inc. and its consolidated subsidiaries. Our subsidiaries consist of Safety Insurance Company (“Safety Insurance”), Safety Indemnity Insurance Company (“Safety Indemnity”), Safety Property and Casualty Insurance Company (“Safety P&C”), Safety Northeast Insurance Company (“Safety Northeast”), Safety Northeast Insurance Agency, Inc. (“SNIA”), and Safety Management Corporation (“SMC”), which is SNIA’s holding company.
We are a leading provider of private passenger automobile (54.9% of our direct written premiums in 2025), commercial automobile, (15.2% of 2025 direct written premiums), and homeowners (25.2% of 2025 direct written premiums) insurance. In addition to these coverages, we offer a portfolio of other insurance products, including dwelling fire, umbrella and business owner policies (totaling 4.7% of 2025 direct written premiums). Operating exclusively in Massachusetts, New Hampshire and Maine through our insurance company subsidiaries, Safety Insurance, Safety Indemnity, Safety P&C, and Safety Northeast (together referred to as the “Insurance Subsidiaries”), we have established strong relationships with independent insurance agents, who numbered 797 in 1,063 locations throughout these three states during 2025. We have used these relationships and our extensive knowledge of the market to become the fourth largest private passenger automobile carrier and the largest commercial automobile carrier in Massachusetts, capturing an approximate 9.4% and 13.0% share, respectively, of the Massachusetts private passenger and commercial automobile markets in 2025, according to statistics compiled by the Commonwealth Automobile Reinsurers (“CAR”) based on automobile exposures. We are the third largest homeowners insurance carrier in Massachusetts, with a market share of 7.0% in 2024.
A.M. Best, which rates insurance companies based on factors of concern to policyholders, currently assigns Safety Insurance an “A (Excellent)” rating. Our “A” rating was reaffirmed by A.M. Best on June 20, 2025.
Our Insurance Subsidiaries began writing insurance in New Hampshire during 2008 and Maine in 2016. In November 2020, we formed a fourth insurance subsidiary, Safety Northeast, which became licensed to write insurance products in Massachusetts. The table below shows the amount of direct written premiums in each state during the years ended December 31, 2025, 2024, and 2023.
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Years Ended December 31,
Recent Trends and Events
Direct and Net Written Premiums. For the three months ended December 31, 2025, direct written premium growth and net written premium growth were 2.6% and 6.5%, respectively. For the year ended December 31, 2025, direct written premium growth and net written premium growth were 7.2% and 7.5%, respectively. The increase in premium is driven by rate increases. For the year ended December 31, 2025, average written premium per policy increased 8.1%, 4.6% and 9.7% in Private Passenger Automobile, Commercial Automobile and Homeowners lines, respectively, compared to the same period in 2024.
The following rate changes have been filed and approved by the insurance regulators of Massachusetts, New Hampshire and Maine in 2026, 2025 and 2024.
Line of Business Effective Date Rate Change
Massachusetts Private Passenger Automobile January 1, 2026 1.3%
Maine Commercial Automobile December 1, 2025 14.8%
Maine Homeowners November 1, 2025 6.6%
New Hampshire Commercial Automobile November 1, 2025 8.2%
New Hampshire Homeowners October 1, 2025 3.9%
New Hampshire Private Passenger Automobile October 1, 2025 5.2%
Maine Private Passenger Automobile September 1, 2025 9.6%
Massachusetts Homeowners August 1, 2025 4.2%
Massachusetts Private Passenger Automobile July 1, 2025 5.1%
Massachusetts Commercial Automobile May 1, 2025 5.2%
Massachusetts Private Passenger Automobile January 1, 2025 5.3%
New Hampshire Commercial Automobile November 1, 2024 9.5%
New Hampshire Private Passenger Automobile October 1, 2024 4.4%
New Hampshire Homeowners October 1, 2024 7.4%
Maine Private Passenger Automobile September 1, 2024 4.4%
Massachusetts Homeowners August 1, 2024 5.9%
Massachusetts Private Passenger Automobile July 1, 2024 4.8%
Massachusetts Commercial Automobile May 1, 2024 6.3%
New Hampshire Private Passenger Automobile April 1, 2024 3.4%
Massachusetts Private Passenger Automobile January 1, 2024 3.5%
Losses and Loss Adjustment Expenses. Losses and loss adjustment expenses incurred for the three months ended December 31, 2025 increased by $14,671, or 7.6%, to $207,678 from $193,007 for the comparable 2024 period. Losses and loss adjustment expenses incurred for the year ended December 31, 2025 increased by $80,545, or 11.2%, to $797,182 from $716,637 for the comparable 2024 period. The increase in losses for both periods ended December 31, 2025 is primarily driven by our larger policy counts and current market conditions, specifically inflationary impacts on our Private Passenger Automobile book of business.
Loss, expense, and combined ratios calculated under U.S. generally accepted accounting principles (“GAAP”) for the quarter ended December 31, 2025 were 70.8%, 28.6%, and 99.4%, respectively, compared to 71.7%, 30.2%, and 101.9%, respectively, for the comparable 2024 period. Loss, expense, and combined ratios calculated under U.S. GAAP for the year ended December 31, 2025 were 70.0%, 29.0%, and 99.0%, respectively, compared to 70.9%, 30.2%, and 101.1%, respectively, for the comparable 2024 period. The 2025 decrease in the loss ratios is due to growth in earned premiums, slightly offset by increased loss severity. The decrease in the expense ratios in both periods is primarily driven by growth in earned premiums.
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We define a “catastrophe” as an event that produces pre-tax losses before reinsurance in excess of $1,000 and involves multiple first-party policyholders, or an event that produces a number of claims in excess of a preset, per-event threshold of average claims in a specific area, occurring within a certain amount of time following the event. Catastrophes are caused by various natural events including high winds, winter storms, tornadoes, hailstorms, and hurricanes. The nature and level of catastrophes in any period cannot be reliably predicted.
Catastrophe losses incurred by the type of event are shown in the following table.
Years Ended December 31,
Freeze $ - $ - $ 29,543
Windstorms and hailstorms $ - $ - $ 11,635
Total losses incurred (1) $ - $ - $ 41,178
Statutory Accounting Principles
Our results are reported in accordance with GAAP, which differ from amounts reported in accordance with statutory accounting principles ("SAP") as prescribed by insurance regulatory authorities, which in general reflect a liquidating, rather than going concern concept of accounting. Specifically, under GAAP:
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
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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 presented in the following table for the periods indicated.
Years Ended December 31,
GAAP ratios:
Share-Based Compensation
On March 24, 2022, the Company’s Board of Directors adopted the Amended and Restated Safety Insurance Group, Inc. 2018 Long-Term Incentive Plan (the “Amended 2018 Plan”), which was subsequently approved by our shareholders at the 2022 Annual Meeting of Shareholders. The Amended 2018 Plan increases the share pool limit by adding 350,000 common shares to the previously adopted Safety Insurance Group, Inc. 2018 Long-Term Incentive Plan. The Amended 2018 Plan enables the grant of stock awards, performance shares, cash-based performance units, other stock-based awards, stock options, stock appreciation rights, and stock unit awards, each of which may be granted separately or in tandem with other awards. Eligibility to participate includes officers, directors, employees and other individuals who provide bona fide services to the Company. The Amended 2018 Plan supersedes the Company’s 2002 Management Omnibus Incentive Plan (“the 2002 Incentive Plan”).
The Amended 2018 Plan establishes a pool of 700,000 shares of common stock available for issuance to our employees and other eligible participants. The Board of Directors and the Compensation Committee intend to issue awards under the Amended 2018 Plan in the future.
The maximum number of shares of common stock between both the 2018 Amended Plan and 2002 Incentive Plan with respect to which awards may be granted is 3,200,000. No further grants will be allowed under the 2002 Incentive Plan. At December 31, 2025, there were 235,663 shares available for future grant. Grants outstanding under the plans as of December 31, 2025, were comprised of 148,902 restricted shares.
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Grants made under the Incentive Plan during the years 2023 through 2025 were as follows.
Type of Number of Fair
Equity Awards Value per
Awarded Effective Date Granted Share (1) Vesting Terms
RS - Performance July 1, 2024 1,327 $ 75.24 3 years, cliff vesting (3)
RS - Performance July 15, 2025 352 $ 72.31 3 years, cliff vesting (3)
(1) The fair value per share of the restricted stock grant is equal to the closing price of our common stock on the grant date.
(2) Board of Director members must maintain stock ownership equal to at least four times their annual cash retainer. This requirement must be met within five years of becoming a director.
(3) The shares represent performance-based restricted shares award. Vesting of these shares is dependent upon the attainment of pre-established performance objectives, and any difference between shares granted and shares earned at the end of the performance period will be reported at the conclusion of the performance period.
(4) The shares represent a true-up of previously awarded performance-based restricted share awards. The updated shares were calculated based on the attainment of pre-established performance objectives and granted under the Amended 2018 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 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 reinsurance market has seen from the various software modelers, increases in the estimate of damage from hurricanes in the southern and northeast portions of the United States due to revised estimations of increased hurricane activity and increases in the estimation of demand surge in the periods following a significant event. We continue to manage and model our exposure and adjust our reinsurance programs as a result of the changes to the models. As of January 1, 2025, we purchased three layers of excess catastrophe reinsurance providing $675,000 of coverage for property losses in excess of $75,000 up to a maximum of $750,000. Our reinsurers’ co-participation is 85.0% of $75,000 for the 1st layer, 85.0% of $250,000 for the 2nd layer, and 85.0% of $350,000 for the 3rd layer. As a result of the changes to the models, our catastrophe reinsurance in 2025 protects us in the event of a “138-year storm” (that is, a storm of a severity expected to occur once in a 138-year period). Most of our reinsurers have an A.M. Best rating of “A+” (Superior) or “A” (Excellent).
We are a participant in CAR, a state-established body that runs the residual market reinsurance programs for commercial automobile insurance in Massachusetts under which premiums, expenses, losses and loss adjustment expenses on ceded business are shared by all insurers writing commercial automobile insurance in Massachusetts.
We also had $169,596 due from CAR comprising of loss and loss adjustment expense reserves, unearned premiums and reinsurance recoverables.
Non-GAAP Measures
Management has included certain non-generally accepted accounting principles (“non-GAAP”) financial measures in presenting the Company’s results. Management believes that these non-GAAP measures better explain the
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Company’s results of operations and allow for a more complete understanding of the underlying trends in the Company’s business. These measures should not be viewed as a substitute for those determined in accordance with GAAP. In addition, our definitions of these items may not be comparable to the definitions used by other companies.
Non-GAAP operating income and non-GAAP operating income per diluted share consist of our GAAP net income adjusted by the net realized gains on investments, net impairment losses on investments, changes in net unrealized gains on equity securities, credit loss benefit (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.
Results of Operations
The following table shows certain of our selected financial results.
Years Ended December 31,
Earnings from partnership investments 8,461 10,271 5,540
Net realized gains on investments 17,982 7,720 1,327
Change in net unrealized gains on equity securities (802) 3,951 7,502
Credit loss benefit (expense) 1,198 9 (530)
Earnings per weighted average common share:
Cash dividends paid per common share $ 3.64 $ 3.60 $ 3.60
Reconciliation of Net Income to Non-GAAP Operating Income:
Exclusions from net income:
Net realized gains on investments (17,982) (7,720) (1,327)
Credit loss (benefit) expense (1,198) (9) 530
Net income per diluted share $ 6.70 $ 4.78 $ 1.28
Exclusions from net income:
Net realized gains on investments (1.22) (0.52) (0.09)
Credit loss (benefit) expense (0.08) - 0.04
Income tax expense 0.26 0.17 0.12
Non-GAAP Operating income per diluted share $ 5.71 $ 4.16 $ 0.84
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YEAR ENDED DECEMBER 31, 2025 COMPARED TO YEAR ENDED DECEMBER 31, 2024
Direct Written Premiums. Direct written premiums for the year ended December 31, 2025 increased by $85,548, or 7.2%, to $1,278,605 from $1,193,057 for the comparable 2024 period. The increase in direct written premium is primarily driven by rate increases. For the year ended December 31, 2025, average written premium per policy increased 8.1%, 4.6% and 9.7% in Private Passenger Automobile, Commercial Automobile and Homeowners lines, respectively, compared to the same period in 2024.
Net Written Premiums. Net written premiums for the year ended December 31, 2025 increased by $82,232, or 7.5%, to $1,175,637 from $1,093,405 for the comparable 2024 period. The 2025 increase was primarily due to the factors that increased direct written premiums.
Net Earned Premiums. Net earned premiums for the year ended December 31, 2025 increased by $128,307, or 12.7%, to $1,139,011 from $1,010,704 for the comparable 2024 period. The 2025 increase was primarily due to the factors that increased direct written premiums.
The effect of reinsurance on net written and net earned premiums is presented in the following table.
Year Ended December 31,
Written Premiums
Earned Premiums
Net Investment Income. Net investment income for the year ended December 31, 2025 increased by $7,012, or 12.6%, to $62,732 from $55,720 for the comparable 2024 period. The increase was primarily driven by higher assets under management, reinvestment rates that exceeded the yields on maturing securities, and strong alternative asset returns. Net effective annual yield on the investment portfolio was 4.0% for the year ended December 31, 2025, compared to 3.9% for comparable 2024 period. Our duration was 3.9 years at December 31, 2025, compared to 3.5 years at December 31, 2024.
Earnings from Partnership Investments. Earnings from partnership investments were $8,461 for the year ended December 31, 2025 compared to $10,271 for the year ended December 31, 2024. The 2025 earnings reflect a decrease in investment appreciation and distribution of investment returns compared to the prior year. Timing and generation of these returns on capital can vary based on the results and transactions of the underlying partnerships.
Net Realized Gains on Investments. Net realized gains on investments were $17,982 for the year ended December 31, 2025 compared to $7,720 for the comparable 2024 period. The increase was primarily driven by gains realized from the sale of mutual fund holdings within our equity security portfolio.
The gross unrealized gains and losses on investments in fixed maturity securities, equity securities, including interests in mutual funds, and other invested assets were as follows:
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Cost or Allowance for Gross Unrealized Estimated
Amortized Expected Credit Fair
Cost Losses Gains Losses (3) Value
U.S. Treasury securities $ 4,211 $ — $ 22 $ (28) $ 4,205
(1) Residential mortgage-backed securities consist 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 700 securities in an unrealized loss position at December 31, 2025.
(4) Other invested assets are accounted for under the equity method which approximated fair value.
The composition of our fixed income security portfolio by rating was as follows:
Estimated
Fair Value Percent
Ratings are generally assigned upon the issuance of the securities and are subject to revision on the basis of ongoing evaluations. Ratings in the table are as of the date indicated.
As of December 31, 2025, the fixed maturity portfolio was primarily composed of investment‐grade corporate securities, U.S. government and agency securities, asset‐backed securities, and investment‐grade collateralized loan obligations (“CLOs”). During the year, management undertook a strategic repositioning that reduced exposure to below‐investment‐grade senior secured bank loans and increased allocations to investment‐grade CLOs. These actions resulted in an improvement in the overall credit quality of the portfolio. The portion of our non‐investment‐grade fixed maturity portfolio is primarily comprised of high‐yield bonds.
The following table illustrates the gross unrealized losses included in our investment portfolio and the fair value of those securities, aggregated by investment category. The table also presents the length of time that they have been in a continuous unrealized loss position of December 31, 2025.
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Less than 12 Months 12 Months or More Total
Fair Value Losses Fair Value Losses Fair Value Losses
U.S. Treasury securities $ — $ — $ 1,474 $ 28 $ 1,474 $ 28
The Company’s analysis of its fixed maturity portfolio as of December 31, 2025 concluded that none of the unrealized losses in the fixed maturity portfolio were due to credit factors; therefore, no allowance for credit losses was recorded compared to an allowance of $1,198 as of December 31, 2024. The Company concluded that, other than securities previously identified as credit-impaired, the unrealized losses recorded on the fixed maturity portfolio at December 31, 2025 and 2024 were driven by changes 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.
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.
For information regarding fair value measurements of our investment portfolio, refer to Item 8—Financial Statements and Supplementary Data, Note 16, Fair Value of Financial Instruments, of this Form 10-K.
Commission Income: Commission income includes revenues from new and renewal commissions paid by insurance carriers, which we recognize when earned. Commission income was $9,498 and $7,942 for the years ended December 31, 2025 and 2024, respectively. The year-over-year change is driven by policy count growth and increased premium rates across the property and casualty insurance market.
Finance and Other Service Income. Finance and other service income includes revenues from premium installment charges, which we recognize when earned, and other miscellaneous income and fees. Finance and other service income increased by $1,952, or 8.2%, to $25,652 for the year ended December 31, 2025 from $23,700 for the comparable 2024 period. The increase is primarily driven by the increase in policy counts and changes to our fee assessment policies.
Losses and Loss Adjustment Expenses. Losses and loss adjustment expenses incurred for the year ended December 31, 2025 increased by $80,545, or 11.2%, to $797,182 from $716,637 for the comparable 2024 period.
Our GAAP loss ratio for the years ended December 31, 2025 and 2024 were 70.0% and 70.9%, respectively. Our GAAP loss ratio excluding loss adjustment expenses was 62.3% and 62.6% for the years ended December 31, 2025 and 2024, respectively. Total prior year favorable development included in the pre-tax results for the year ended December 31, 2025 was $44,552, compared to $51,894 for the comparable 2024 period. The decrease in favorable prior year development in 2025 is primarily attributable to the inclusion of $8,644 of FAIR Plan development in the prior year.
Underwriting, Operating and Related Expenses. Underwriting, operating and related expenses for the year ended December 31, 2025 increased by $25,074, or 8.2%, to $330,396 from $305,322 for the comparable 2024 period. The increase is driven by an increase in base commissions resulting from the increase in written premiums. Our GAAP
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expense ratio for the year ended December 31, 2025 decreased to 29.0% from 30.2% for the comparable 2024 period due to higher earned premium.
Other Expense: Other expense includes the operating and related expenses associated with SNIA.
Interest Expense. Interest expense was $1,530 and $509 for the years ended December 31, 2025 and 2024, respectively. The credit facility commitment fee included in interest expense was $14 and $60 for the years ended December 31, 2025 and 2024, respectively. The increase in interest expense during the current year is primarily due to the new borrowings under the Company’s existing Credit Agreement with Citizens Bank on March 27, 2025, which carries an interest rate of SOFR rate plus 1.25%, compared to the repaid FHLB loan that had a fixed rate of 1.42%. Additionally, the Company no longer incurs a credit facility commitment fee as of March 27, 2025, since a loan is currently outstanding under the facility. For further information, refer to Item 8 – Financial Statements and Supplementary Data, Note 10, Debt, of this Form 10‐K.
Income Tax Expense. Our effective tax rates were 21.7% and 21.3% for the years ended December 31, 2025 and 2024, respectively. The effective rates for the year ended December 31, 2025 and 2024 were higher than the statutory rate primary due to the impact of stock-based and executive compensation.
The comparison of results for the year ended December 31, 2024 compared to the year ended December 31, 2023 can be found in the Company’s 2024 Annual Report on Form 10-K filed with the SEC on February 27, 2025.
Liquidity and Capital Resources
As a holding company, Safety’s assets consist primarily of the stock of our direct and indirect subsidiaries. Our principal source of funds to meet our obligations and pay dividends to shareholders, therefore, is dividends and other permitted payments from our subsidiaries, principally Safety Insurance. Safety is the borrower under our credit facility.
Safety Insurance’s sources of funds primarily include premiums received, investment income and proceeds from sales and redemptions of investments. Safety Insurance’s principal uses of cash are the payment of claims, operating expenses and taxes, the purchase of investments and payment of dividends to Safety.
Net cash provided by operating activities was $194,498, $128,688, and $52,114 during the years ended December 31, 2025, 2024, and 2023, respectively. Our operations typically generate positive cash flows from operations as most premiums are received in advance of the time when claim and benefit payments are required. These positive operating cash flows are expected to continue to meet our liquidity requirements.
Net cash used for investing activities was $125,706 and $54,541 during the years ended December 31, 2025 and 2024, respectively. Net cash provided by investing activities was $24,269 for the year ended December 31, 2023. This fluctuation was driven by purchases exceeding proceeds from sales, paydowns, calls and maturities of fixed maturity and equity securities in 2025.
Net cash used for financing activities was $53,865, $53,325, and $63,531 during the years ended December 31, 2025, 2024 and 2023, respectively. Net cash used for financing activities during the year ended December 31, 2025 consisted of dividend payments to shareholders, the acquisition of treasury stock and payments on a loan that matured during the year, partially offset by proceeds from a new loan.
The Insurance Subsidiaries maintain a high degree of liquidity within their respective investment portfolios in fixed maturity and short-term investments. We do not anticipate the need to sell these securities to meet the Insurance Subsidiaries cash requirements. We expect the Insurance Subsidiaries to generate sufficient operating cash to meet all short-term and long-term cash requirements. However, there can be no assurance that unforeseen business needs or other items will not occur causing us to have to sell securities before their values fully recover; thereby causing us to recognize additional impairment charges in that time period.
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Credit Facility
For information regarding our Credit Facility, please refer to Item 8—Financial Statements and Supplementary Data, Note 10, Debt, of this Form 10-K.
Recent Accounting Pronouncements
For information regarding Recent Accounting Pronouncements, please refer to Item 8—Financial Statements and Supplementary Data, Note 2, Summary of Significant Accounting Policies, of this Form 10-K.
Regulatory Matters
Our insurance company’s subsidiaries are subject to various regulatory restrictions that limit the maximum amount of dividends available to be paid to their parent without prior approval of the Commissioner. The Massachusetts statute limits the dividends an insurer may pay in any twelve-month period, without the prior permission of the Commissioner, to the greater of (i) 10% of the insurer’s surplus as of the preceding December 31 or (ii) the insurer’s net income for the twelve-month period ending the preceding December 31, in each case determined in accordance with statutory accounting practices. Our Insurance Subsidiaries may not declare an “extraordinary dividend” (defined as any dividend or distribution that, together with other distributions made within the preceding twelve months, exceeds the limits established by Massachusetts statute) until thirty days after the Commissioner has received notice of the intended dividend and has not objected. As historically administered by the Commissioner, this provision requires the Commissioner’s prior approval of an extraordinary dividend. Under Massachusetts law, an insurer may pay cash dividends only from its unassigned funds, also known as earned surplus, and the insurer’s remaining surplus must be both reasonable in relation to its outstanding liabilities and adequate to its financial needs. At year-end 2025, the statutory surplus of Safety Insurance was $833,432, and its net income for 2025 was $83,092. As a result, a maximum of $83,343 is available in 2026 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 $750,089 at December 31, 2025. During the twelve months ended December 31, 2025, Safety Insurance paid dividends to Safety of $51,993.
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 2025 and 2024 were as follows:
Total
Declaration Record Payment Dividend per Dividends Paid
Date Date Date Common Share and Accrued
On February 13, 2026, our Board approved and declared a quarterly cash dividend on our common stock of $0.92 per share to be paid on March 13, 2026 to shareholders of record on March 2, 2026. We plan to continue to declare and pay quarterly cash dividends in 2026, depending on our financial position and the regularity of our cash flows.
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On February 23, 2022, the Board approved a share repurchase program of up to $50,000 of the Company’s outstanding common shares. The Board of Directors had cumulatively authorized increases to the existing share repurchase program of up to $200,000 of its outstanding common shares. Under the program, the Company may repurchase shares of its common stock for cash in public or private transactions, in the open market or otherwise. The timing of such repurchases and actual number of shares repurchased will depend on a variety of factors including price, market conditions and applicable regulatory and corporate requirements. The program does not require the Company to repurchase any specific number of shares and may be modified, suspended or terminated at any time without prior notice.
During the three months ended December 31, 2025, the Company purchased 262,370 shares at a cost of $20,000. No share purchases were made by the Company during the three months ended December 31, 2024. For the year ended December 31, 2025, the Company purchased 262,370 shares at a cost of $20,000. No shares were purchased by the Company during the year ended December 31, 2024. Included in the cost of treasury stock acquired during 2025, in the consolidated statement of shareholders’ equity, is the one percent excise tax imposed as part of the Inflation Reduction Act, which became effective January 1, 2023. As of December 31, 2025 and 2024, the Company had purchased 3,478,060 and 3,215,690 shares at cost of $175,240 and $155,240, respectively
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.
Contractual Obligations
We have obligations to make future payments under contracts and credit-related financial instruments and commitments.
As of December 31, 2025, the Company had loss and LAE reserves of $761,739, unpaid reinsurance recoverables of $149,441 and net loss and LAE reserves of $612,298. Our loss and LAE reserves are estimates as described in more detail under Critical Accounting Policies and Estimates. The specific amounts and timing of obligations related to case reserves, IBNR reserves and related LAE reserves are not set contractually, and the amounts and timing of these obligations are unknown. While management believes that historical performance of loss payment patterns is a reasonable source for projecting future claims payments, there is inherent uncertainty in this estimated projected settlement of loss and LAE reserves, and as a result these estimates will differ, perhaps significantly, from actual future payments.
As part of the Company’s investment activity, we have committed $170,000 to investments in limited partnerships. The Company has contributed $152,626 to these commitments as of December 31, 2025. As of December 31, 2025, the remaining committed capital that could be called is $29,112, which includes potential recallable capital distributions.
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
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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 professional. During the loss adjustment period, these estimates are revised as deemed necessary by our claims department based on subsequent developments and periodic reviews of the cases. When a claim is closed with or without a payment, the difference between the case reserve and the settlement amount creates a reserve deficiency if the payment exceeds the case reserve or a reserve redundancy if the payment is less than the case reserve.
In accordance with industry practice, we also maintain reserves for IBNR. IBNR reserves are determined in accordance with commonly accepted actuarial reserving techniques on the basis of our historical information and experience. We review and make adjustments to incurred but not yet reported reserves quarterly. In addition, IBNR reserves can also be expressed as the total loss reserves required less the case reserves on reported claims.
When reviewing reserves, we analyze historical data and estimate the impact of various loss development factors, such as our historical loss experience and that of the industry, trends in claims frequency and severity, our mix of business, our claims processing procedures, legislative enactments, judicial decisions, legal developments in imposition of damages, and changes and trends in general economic conditions, including the effects of inflation. A change in any of these factors from the assumption implicit in our estimate can cause our actual loss experience to be better or worse than our reserves, and the difference can be material. There is no precise method, however, for evaluating the impact of any specific factor on the adequacy of reserves, because the eventual development of reserves is affected by many factors.
In estimating all our loss reserves, we follow the guidance prescribed by ASC 944, Financial Services – Insurance.
Management determines our loss and loss adjustment expense reserves estimate based upon the analysis of our actuaries. A reasonable estimate is derived by selecting a point estimate within a range of indications as calculated by our actuaries using generally accepted actuarial techniques. The key assumption in most actuarial analysis is that past patterns of frequency and severity will repeat in the future, unless a significant change in the factors described above takes place. Our key factors and resulting assumptions are the ultimate frequency and severity of claims, based upon the most recent ten years of claims reported to the Company, and the data CAR reports to us to calculate our share of the residual market, as of the date of the applicable balance sheet. For each accident year and each coverage within a line of business our actuaries calculate the ultimate losses incurred. Our total reserves are the difference between the ultimate losses incurred and the cumulative loss and loss adjustment payments made to date. Our IBNR reserves are calculated as the difference between our total reserves and the outstanding case reserves at the end of the accounting period. To determine ultimate losses, our actuaries calculate a range of indications and select a point estimation using such actuarial techniques as:
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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 $573,526 to $640,415 as of December 31, 2025 compared to a range of $497,512 to $566,772 as of December 31, 2024. In general, the low and high values of the ranges represent reasonable minimum and maximum values of the indications based on the techniques described above. Our selected point estimate of net loss and loss adjustment expense reserves based upon the analysis of our actuaries was $612,298 as of December 31, 2025 compared to $540,877 as of December 31, 2024.
The following table presents the point estimation of the recorded reserves and the range of estimations by line of business for net loss and LAE reserves as of December 31, 2025.
Line of Business Low Recorded High
The following table presents our total net reserves and the corresponding case reserves and IBNR reserves for each line of business as of December 31, 2025.
Line of Business Case IBNR Total
CAR assumed private passenger auto - 8 8
At December 31, 2025 and 2024, our total IBNR reserves for our private passenger automobile line of business were comprised of ($90,414) and ($98,528) related to estimated ultimate decreases in the case reserves, including anticipated recoveries (i.e. salvage and subrogation), and $43,297 and $41,462 related to our estimation for not yet reported losses, respectively.
Our IBNR reserves consist of our estimate of the total loss reserves required less our case reserves. The IBNR reserves for CAR assumed commercial automobile business are 40.6% of our total reserves for CAR assumed commercial automobile business as of December 31, 2025 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.
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 December 31, 2025.
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Line of Business Retained Assumed Net
Private passenger automobile $ 303,842
CAR assumed private passenger automobile $ 8
Net private passenger automobile $ 303,850
Commercial automobile 94,842
CAR assumed commercial automobile 33,281
Net commercial automobile 128,123
Residual Market Loss and Loss Adjustment Expense Reserves
We are a participant in CAR 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 were a participant in the FAIR Plan until the recent FAIR Plan Restructuring in 2024. We estimate reserves for assumed losses and LAE that have not yet been reported to us by the residual markets. Our estimations are based upon the same factors we use for our own reserves, plus additional factors due to the nature of and the information we receive.
Residual market deficits consist of premium ceded to the various residual markets less losses and LAE and is allocated among insurance companies based on a various formulas (the “Participation Ratio”) that take into consideration a company’s voluntary market share.
Because of the lag in the various residual market estimations, and in order to try to validate to the extent possible the information provided, we estimate the effects of the actions of our competitors in order to establish our Participation Ratio.
Although we rely to a significant extent in setting our reserves on the information the various residual markets provide, we are cautious in our use of that information, because of the delays in receiving data from the various residual markets. As a result, we have to estimate our Participation Ratio and these reserves are subject to significant judgments and estimates.
Sensitivity Analysis
Establishment of appropriate reserves is an inherently uncertain process. There can be no certainty that currently established reserves based on our key assumptions regarding frequency and severity in our lines of business, or our assumptions regarding our share of the CAR loss will prove adequate in light of subsequent actual experience. To the extent that reserves are inadequate and are strengthened, the amount of such increase is treated as a charge to earnings in the period that the deficiency is recognized. To the extent that reserves are redundant and are released, the amount of the release is a credit to earnings in the period the redundancy is recognized. For the twelve months ended December 31, 2025, a 1 percentage-point change in the loss and LAE ratio would result in a change in reserves of $11,391. Each 1 percentage-point change in the loss and loss expense ratio would have had a $8,999 effect on net income, or $0.61 per diluted share.
Our assumptions consider that past experience, adjusted for the effects of current developments and anticipated trends, are an appropriate basis for establishing our reserves. Our individual key assumptions could each have a reasonable possible range of plus or minus 5 percentage-points for each estimation, although there is no guarantee that our assumptions will not have more than a 5 percentage point variation. The following sensitivity tables present information for each of our primary lines of business on the effect each 1 percentage-point change in each of our key assumptions on unpaid frequency and severity could have on our retained (i.e., direct minus ceded) loss and LAE reserves and net income for the twelve months ended December 31, 2025. 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 $ (6,077) $ (3,038) $ —
Estimated increase in net income 4,801 2,400 —
No Change in Severity
Estimated (decrease) increase in reserves (3,038) — 3,038
Estimated increase (decrease) in net income 2,400 — (2,400)
+1 Percent Change in Severity
Estimated increase in reserves — 3,038 6,077
Estimated decrease in net income — (2,400) (4,801)
Commercial automobile retained loss and LAE reserves
-1 Percent Change in Severity
Estimated decrease in reserves (1,897) (948) —
Estimated increase in net income 1,499 749 —
No Change in Severity
Estimated (decrease) increase in reserves (948) — 948
Estimated increase (decrease) in net income 749 — (749)
+1 Percent Change in Severity
Estimated increase in reserves — 948 1,897
Estimated decrease in net income — (749) (1,499)
Homeowners retained loss and LAE reserves
-1 Percent Change in Severity
Estimated decrease in reserves (2,272) (1,136) —
Estimated increase in net income 1,795 897 —
No Change in Severity
Estimated (decrease) increase in reserves (1,136) — 1,136
Estimated increase (decrease) in net income 897 — (897)
+1 Percent Change in Severity
Estimated increase in reserves — 1,136 2,272
Estimated decrease in net income — (897) (1,795)
All other retained loss and LAE reserves
-1 Percent Change in Severity
Estimated decrease in reserves (1,335) (667) —
Estimated increase in net income 1,054 527 —
No Change in Severity
Estimated (decrease) increase in reserves (667) — 667
Estimated increase (decrease) in net income 527 — (527)
+1 Percent Change in Severity
Estimated increase in reserves — 667 1,335
Estimated decrease in net income — (527) (1,054)
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. Our assumptions consider that past experience, adjusted for the effects of current developments and anticipated trends, is an appropriate basis for establishing our CAR reserves. Each of our assumptions could have a reasonably possible range of plus or minus 5 percentage-points for each estimation.
The following sensitivity table presents information of the effect each 1 percentage-point change in our assumptions on our share of reserves for CAR and other residual markets could have on our assumed loss and LAE reserves and net income for the year ended December 31, 2025. 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 commercial automobile
Estimated (decrease) increase in reserves $ (333) $ 333
Estimated increase (decrease) in net income 263 (263)
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 $44,552, $51,894 and $47,381 during the years ended December 31, 2025, 2024, and 2023, respectively.
The following table presents a comparison of prior year development of our net reserves for losses and LAE for the years ended December 31, 2025, 2024 and 2023, respectively. Each accident year represents all claims for an annual accounting period in which loss events occurred, regardless of when the losses are actually reported, booked or paid. Our financial statements reflect the aggregate results of the current and all prior accident years.
Year Ended December 31,
At the end of each period, the reserves were re-estimated for all prior accident years. Our prior year reserves decreased by $44,552, $51,894, and $47,381 for the years ended 2025, 2024, and 2023, respectively. The decreases in prior year reserves in 2025 resulted from re-estimations of prior years’ ultimate loss and LAE liabilities and are primarily composed of reductions of $13,732 in our retained automobile reserves and $28,809 in our retained other than auto and homeowner’s reserves. The decreases in prior year reserves in 2024 resulted from re-estimations of prior year’s ultimate loss and LAE liabilities and are primarily composed of reductions of $12,742 in our retained automobile reserves and $29,286 in our retained other than auto and homeowner reserves. The decrease in prior year reserves during 2023 are primarily composed of reductions of $15,451 in our retained automobile reserves and $29,782 in our retained homeowners reserves. It is not appropriate to extrapolate future favorable or unfavorable development of reserves from this past experience.
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The following table presents information by line of business for prior year development of our net reserves for losses and LAE for the year ended December 31, 2025.
Accident Year Automobile Automobile Homeowners All Other Total
To further clarify the effects of changes in our reserve estimates for CAR and other residual markets, the next two tables break out the information in the table above by source of the business (i.e., non-residual market vs. residual market).
The following table presents information by line of business for prior year development of retained reserves for losses and LAE for the year ended December 31, 2025 that is, all our reserves except for business ceded or assumed from CAR and other residual markets.
Retained Retained
Private Passenger Commercial Retained Retained
The following table presents information by line of business for prior year development of reserves assumed from residual markets for losses and LAE for the year ended December 31, 2025.
CAR Assumed CAR Assumed
Private Passenger Commercial
Accident Year Automobile Automobile Total
2015 & prior $ — $ — $ —
2016 — — —
2017 — — —
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.
In estimating all our loss reserves, we follow the guidance prescribed by ASC 944, Financial Services-Insurance.
For further information, see “Results of Operations: Losses and Loss Adjustment Expenses.”
Forward-Looking Statements
Forward-looking statements might include one or more of the following, among others:
● Legal and regulatory commentary;
● Future performance of credit markets.
Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “aim,” “projects,” or words of similar meaning and expressions that indicate future events and trends, or future or conditional verbs such as “will,” “would,” “should,” “could,” or “may.” All statements that address expectations or projections about the future, including statements about the Company’s strategy for growth, product development, market position, expenditures and financial results, are forward-looking statements.
Forward-looking statements are not guarantees of future performance. By their nature, forward-looking statements are subject to risks and uncertainties. There are a number of factors, many of which are beyond our control, that could cause actual future conditions, events, results or trends to differ significantly and/or materially from historical results or those projected in the forward-looking statements. These factors include but are not limited to:
● The possibility of losses due to claims resulting from severe weather;
● The impact of inflation and supply chain delays on loss severity;
Some other factors, such as market, operational, liquidity, interest rate, equity and other risks, are described elsewhere in this Annual Report on Form 10-K. Factors relating to the regulation and supervision of our Company are also described or incorporated in this report. There are other factors besides those described or incorporated in this report that could cause actual conditions, events or results to differ from those in the forward-looking statements.
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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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk. Market risk is the risk that we will incur losses due to adverse changes in market rates and prices. We have exposure to market risk through our investment activities and our financing activities. Our primary market risk exposure is to changes in interest rates. We use both fixed and variable rate debt as sources of financing. We have not entered, and do not plan to enter, into any derivative financial instruments for trading or speculative purposes.
Interest Rate Risk. Interest rate risk is the risk that we will incur economic losses due to adverse changes in interest rates. Our exposure to interest rate changes primarily results from our significant holdings of fixed rate investments and from our financing activities. Our fixed maturity investments include U.S. and foreign government bonds, securities issued by government agencies, obligations of state and local governments and governmental authorities, corporate bonds and asset-backed securities, most of which are exposed to changes in prevailing interest rates.
We manage our exposure to risks associated with interest rate fluctuations through active review of our investment portfolio by our management and Board and consultation with third-party financial advisors. As a general matter, we do not attempt to match the durations of our assets with the durations of our liabilities, and the majority of our liabilities are “short tail.” Our goal is to maximize the total after-tax return on all of our investments. An important strategy that we employ to achieve this goal is to try to hold enough in cash and short-term investments in order to avoid liquidating longer-term investments to pay claims.
Based upon the results of interest rate sensitivity analysis, the following table shows the interest rate risk of our investments in fixed maturities, measured in terms of fair value (which is equal to the carrying value for all our fixed maturity securities).
-100 Basis +100 Basis
Point Change No Change Point Change
As of December 31, 2025
Estimated increase (decrease) in fair value $ 63,425 $ — $ (63,658)
With respect to floating rate debt, we are exposed to the effects of changes in prevailing interest rates. At December 31, 2025, we had $50,000 of 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 $1000 for 2025, 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.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
SAFETY INSURANCE GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34) 61
Balance Sheets 64
Statements of Operations 65
Statements of Comprehensive Income 66
Statements of Changes in Shareholders’ Equity 67
Statements of Cash Flows 68
Notes to Consolidated Financial Statements 69
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Report of Independent Registered Public Accounting Firm
To the shareholders and the Board of Directors of Safety Insurance Group, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Safety Insurance Group, Inc. and subsidiaries (the "Company") as of December 31, 2025 and 2024, the related consolidated statements of operations, comprehensive income, changes in shareholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2025, and the related notes and the schedules listed in the Index at Item 15 (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2025, and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A Controls and Procedures. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
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management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Losses and Loss Adjustment Expense Reserves – Refer to Notes 2 and 12 to the financial statements
Critical Audit Matter Description
The Company establishes loss and loss adjustment expense reserves as balance sheet liabilities representing estimates of amounts needed to pay reported and unreported losses and the expenses associated with investigating and paying the losses, or loss adjustment expenses. The loss and loss adjustment expense reserves are determined in accordance with commonly accepted actuarial reserving techniques on the basis of the Company’s historical information and experience. In determining the loss and loss adjustment expense reserves, the Company analyzes historical data and estimates the impact of various loss development factors, such as the Company’s historical loss experience and that of the industry, trends in claims frequency and severity, the Company’s mix of business, the Company’s claims processing procedures, legislative enactments, judicial decisions, legal developments in imposition of damages, and changes and trends in general economic conditions, including the effects of inflation.
Given the subjectivity associated with assumptions and methodologies used in determining the estimated ultimate cost to settle the liabilities for certain long tail reported and unreported losses due to uncertainties caused by various factors including frequency and severity of claims, as well as future legislative, judicial, and legal uncertainties, performing audit procedures to evaluate whether the ultimate cost of loss and loss adjustment expense reserves were appropriately recorded as of December 31, 2025, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our actuarial specialists.
How the Critical Audit Matter was Addressed in the Audit
Our audit procedures related to certain loss and loss adjustment expense reserves included the following, among others:
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/s/ Deloitte & Touche LLP
Boston, Massachusetts
February 27, 2026
We have served as the Company’s auditor since 2021.
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Safety Insurance Group, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except share data)
December 31, December 31,