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,” “the 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, which is SNIA’s holding company.
We are a leading provider of private passenger automobile, commercial automobile, homeowners and commercial other-than-auto insurance in Massachusetts. In addition to private passenger automobile insurance (which represented 54.9% of our direct written premiums in 2025), we offer a portfolio of other insurance products, including commercial automobile (15.2% of 2025 direct written premiums), homeowners (25.2% of 2025 direct written premiums) and 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 at December 31, 2025. We have used these relationships and our extensive knowledge of the Massachusetts market to become the third largest private passenger automobile carrier and the second largest commercial automobile insurance carrier in Massachusetts, capturing an approximate 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 also the third largest homeowners insurance carrier in Massachusetts with a 7.0% 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 July 15, 2026.
Our Insurance Subsidiaries began writing insurance in New Hampshire during 2008 and in Maine in 2016. In November 2020, we formed a fourth insurance subsidiary, Safety Northeast, which became licensed to write insurance products in Massachusetts.
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The table below shows the amount of direct written premiums written in each state during the three and six months ended June 30, 2026 and 2025.
Three Months Ended June 30, Six Months Ended June 30,
Direct Written Premiums 2026 2025 2026 2025
Massachusetts $ 321,930 $ 326,925 $ 604,535 $ 610,204
New Hampshire 15,027 14,731 28,286 27,154
Maine 4,878 4,173 8,789 7,441
Total $ 341,835 $ 345,829 $ 641,610 $ 644,799
Recent Trends and Events
During the quarter ended March 31, 2026, the Northeast region was impacted by two severe winter weather events (“Winter Storms”). Beginning on January 23, 2026 through January 26, 2026, the Northeast region experienced a severe winter weather event, which developed into a nor’easter, bringing blizzard conditions including excess snowfall, subzero temperatures and wind gusts reaching 75 miles per hour. Beginning on February 22, 2026, the Northeast region experienced a severe winter weather event, which produced record-breaking snowfall and hurricane-force wind gusts. Areas in the region received up to 36 inches of snowfall and wind gusts exceeding 80 miles per hour. As a result of the Winter Storms, the Company received approximately 1,800 reported claims totaling $42,736 of losses and loss adjustment expenses for the six months ended June 30, 2026.
Direct and Net Written Premiums. For the three months ended June 30, 2026, direct written premium and net written premium decreased 1.2% and 1.9%, respectively, compared to the prior period. The decrease was primarily due to the cancellation of certain underperforming agency relationships. For the six months ended June 30, 2026, the Company experienced policy count declines of 8.8% in Private Passenger Automobile and 4.0% in Homeowners lines, partially offset by 2.7% growth in Commercial Automobile policies, compared to the same period in 2025. Average written premium per policy increased 2.9%, 6.4% and 10.9% in Private Passenger Automobile, Commercial Automobile and Homeowners lines, respectively, primarily reflecting rate increases.
Losses and Loss Adjustment Expenses. Losses and loss adjustment expenses incurred for the three months ended June 30, 2026 increased by $887, or 0.5%, to $195,119 from $194,232 for the comparable 2025 period. Losses and loss adjustment expenses incurred for the six months ended June 30, 2026 increased by $58,087, or 15.1%, to $442,609 from $384,522 for the comparable 2025 period. Our losses and loss adjustment expenses ratio for the three months ended June 30, 2026 decreased to 66.9% from 68.8% for the comparable 2025 period. The decrease in our losses and loss adjustment expense ratio for the three months ended June 30, 2026 is primarily driven by improved reported accident frequency in our Private Passenger Automobile line of business. Our losses and loss adjustment expense ratio for the six months ended June 30, 2026 increased to 76.0% from 69.3% for the comparable 2025 period. The increase in losses and loss adjustment expense ratio for the six months ended June 30, 2026 is due to the impact of Winter Storms.
The following rate changes have been filed and approved by the insurance regulators of Massachusetts, New Hampshire and Maine in 2026 and 2025.
Line of Business Effective Date Rate Change
Massachusetts Private Passenger Automobile July 1, 2026 3.3%
Maine Private Passenger Automobile June 1, 2026 1.7%
Massachusetts Commercial Automobile May 1, 2026 5.9%
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%
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Insurance Ratios
The property and casualty insurance industry uses the combined ratio as a measure of underwriting profitability. The combined ratio is the sum of the loss ratio (losses and loss adjustment expenses incurred as a percent of net earned premiums) plus the expense ratio (underwriting and other expenses as a percent of net earned premiums, calculated on a Generally Accepted Accounting Principles (“GAAP”) basis). The combined ratio reflects only underwriting results and does not include income from investments or finance and other service income. Underwriting profitability is subject to significant fluctuations due to competition, catastrophic events, weather, economic and social conditions, and other factors.
Our GAAP insurance ratios are outlined in the following table.
Three Months Ended June 30, Six Months Ended June 30,
2026 2025 2026 2025
GAAP ratios:
Loss ratio 66.9 % 68.8 % 76.0 % 69.3 %
Expense ratio 28.8 29.3 28.5 29.5
Combined ratio 95.7 % 98.1 % 104.5 % 98.8 %
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 Amended 2018 Plan and 2002 Incentive Plan with respect to which awards may be granted is 3,200,000. No further grants will be allowed under the 2002 Incentive Plan. At June 30, 2026, there were 160,334 shares available for future grant.
A summary of share based awards granted under the Incentive Plan during the six months ended June 30, 2026 is as follows:
Type of Number of Fair
Equity Awards Value per
Awarded Effective Date Granted Share (1) Vesting Terms
RS - Service February 25, 2026 37,784 $ 78.46 3 years, 30%-30%-40%
RS - Performance February 25, 2026 31,047 $ 78.46 3 years, cliff vesting (3)
RS February 25, 2026 6,498 $ 78.46 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.
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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 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 2026 that protects us in the event of a “140-year storm” (that is, a storm of a severity expected to occur once in a 140-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.
For 2026, we have purchased three layers of excess catastrophe reinsurance providing $770,000 of coverage for property losses in excess of $80,000 up to a maximum of $850,000. Our reinsurers’ co-participation is 85.0% of $120,000 for the 1st layer, 85.0% of $250,000 for the 2nd layer and 90.0% of $400,000 for the 3rd layer.
We also have casualty excess of loss reinsurance for large casualty losses occurring in our automobile, homeowners, dwelling fire, and business owner lines of business in excess of $2,000 up to a maximum of $10,000. We have property excess of loss reinsurance coverage for large property losses, with coverage in excess of $3,000 up to a maximum of $25,000, for our homeowners, and business owners. In addition, we have liability excess of loss reinsurance for umbrella large losses in excess of $1,000 up to a maximum of $10,000. We also have various reinsurance agreements with Hartford Steam Boiler Inspection and Insurance Company, of which the primary contract is a quota share agreement under which we cede 100% of the premiums and losses for the equipment breakdown coverage under our business owner policies.
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.
At June 30, 2026, we had $181,032 recoverable from CAR, which consisted of loss adjustment expense reserves, unearned premiums and reinsurance recoverable.
Proposed Merger
On July 23, 2026, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with MAPFRE U.S.A. Corp., a Massachusetts corporation (“Parent”), and Splash Merger Sub, Inc., a Delaware corporation and wholly owned direct subsidiary of Parent (“Merger Subsidiary”), pursuant to which the Company is to be acquired by Parent. Upon the terms and conditions set forth in the Merger Agreement, Merger Subsidiary will be merged with and into the Company, with the Company surviving as a wholly owned subsidiary of Parent (the “Merger”). At the effective time of the Merger, each issued and outstanding share of the Company’s common stock (other than certain excluded shares and shares held by stockholders who properly exercise appraisal rights) will be cancelled and converted into the right to receive $105.00 per share in cash, without interest thereon. In addition, at or immediately prior to the effective time, our outstanding equity awards, including stock options and restricted stock units, will be cancelled and converted into the right to receive cash payments based on the Merger consideration, subject to the terms of the Merger Agreement.
The respective obligations of the Company, Parent and Merger Subsidiary to consummate the transactions contemplated by the Merger Agreement are subject to the satisfaction or waiver of customary closing conditions, including, among others, approval by the holders of a majority of the voting powers of the outstanding shares of Company common stock entitled to vote on the Merger and the receipt of certain regulatory approvals, including from insurance regulators in Massachusetts. In addition, Parent’s and Merger Subsidiary’s obligation to consummate the
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transactions contemplated by the Merger Agreement are subject to the satisfaction or waiver of a condition that there has not occurred a material adverse effect on the Company since the date of the Merger Agreement that is continuing.
The Company expects to incur significant costs, expenses, and fees for professional services and other transaction costs in connection with the Merger. Additionally, if the Merger Agreement is terminated under specified circumstances, the Company may be required to pay Parent a termination fee of $46.2 million and Parent may in certain circumstances be required to pay the Company a termination fee of $111.8 million.
Non-GAAP Measures
Management has included certain non-GAAP financial measures in presenting the Company’s results. Management believes that these non-GAAP measures better explain the Company’s results of operations and allow for a more complete understanding of the underlying trends in the Company’s business. These measures should not be viewed as a substitute for those determined in accordance with GAAP. In addition, our definitions of these items may not be comparable to the definitions used by other companies.
Non-GAAP operating income and non-GAAP operating income per diluted share consist of our GAAP net income adjusted by the net realized gains (losses) on investments, changes in net unrealized gains on equity securities, credit loss benefit (expense) and taxes related thereto. Net income 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 and Six Months Ended June 30, 2026 Compared to Three and Six Months Ended June 30, 2025
The following table shows certain of our selected financial results.
Three Months Ended June 30, Six Months Ended June 30,
2026 2025 2026 2025
Direct written premiums $ 341,835 $ 345,829 $ 641,610 $ 644,799
Net written premiums $ 313,510 $ 319,475 $ 588,941 $ 594,255
Net earned premiums $ 291,653 $ 282,113 $ 582,639 $ 554,803
Net investment income 16,559 15,724 33,597 30,298
Earnings from partnership investments 3,329 346 7,234 2,458
Net realized gains on investments 1,418 2,131 8,049 6,394
Change in net unrealized gains on equity securities 4,720 7,194 (6,777) 6,923
Credit loss (expense) benefit (7) 66 (355) (255)
Commission income 2,252 2,285 4,402 4,380
Finance and other service income 5,758 6,485 11,559 12,772
Total revenue 325,682 316,344 640,348 617,773
Losses and loss adjustment expenses 195,119 194,232 442,609 384,522
Underwriting, operating and related expenses 83,883 82,796 166,164 163,647
Other expense 2,110 2,047 4,247 4,001
Interest expense 814 442 1,432 546
Total expenses 281,926 279,517 614,452 552,716
Income before income taxes 43,756 36,827 25,896 65,057
Income tax expense 9,239 7,890 5,702 14,224
Net income $ 34,517 $ 28,937 $ 20,194 $ 50,833
Earnings per weighted average common share:
Basic $ 2.36 $ 1.95 $ 1.38 $ 3.44
Diluted $ 2.36 $ 1.95 $ 1.38 $ 3.43
Cash dividends paid per common share $ 0.92 $ 0.90 $ 1.84 $ 1.80
Reconciliation of Net Income to Non-GAAP Operating Income
Net income $ 34,517 $ 28,937 $ 20,194 $ 50,833
Exclusions from net income:
Net realized gains on investments (1,418) (2,131) (8,049) (6,394)
Change in net unrealized gains on equity securities (4,720) (7,194) 6,777 (6,923)
Credit loss expense (benefit) 7 (66) 355 255
Income tax expense 1,288 1,972 193 2,743
Non-GAAP operating income $ 29,674 $ 21,518 $ 19,470 $ 40,514
Net income per diluted share $ 2.36 $ 1.95 $ 1.38 $ 3.43
Exclusions from net income:
Net realized gains on investments (0.10) (0.14) (0.55) (0.43)
Change in net unrealized gains on equity securities (0.32) (0.49) 0.47 (0.47)
Credit loss expense - - 0.02 0.02
Income tax expense 0.09 0.13 0.01 0.19
Non-GAAP operating income per diluted share $ 2.03 $ 1.45 $ 1.33 $ 2.74
Direct Written Premiums. Direct written premiums for the three months ended June 30, 2026 decreased by $3,994, or 1.2%, to $341,835 from $345,829 for the comparable 2025 period. Direct written premiums for the six months ended June 30, 2026 decreased by $3,189, or 0.5%, to $641,610 from $644,799 for the comparable 2025 period. The decreases in direct written premiums and net written premiums reflect lower policy counts resulting from the cancellation of certain underperforming agency relationships. For the six months ended June 30, 2026, average written premium per policy increased 2.9%, 6.4% and 10.9% in Private Passenger Automobile, Commercial Automobile and Homeowners lines, respectively, compared to the same period in 2025.
Net Written Premiums. Net written premiums for the three months ended June 30, 2026 decreased by $5,965, or 1.9%, to $313,510 from $319,475 for the comparable 2025 period. Net written premiums for the six months ended
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June 30, 2026 decreased by $5,314, or 0.9%, to $588,941 from $594,255 for the comparable 2025 period. The decreases were primarily due to the factors that decreased direct written premiums.
Net Earned Premiums. Net earned premiums for the three months ended June 30, 2026 increased by $9,540, or 3.4%, to $291,653 from $282,113 for the comparable 2025 period. Net earned premiums for the six months ended June 30, 2026 increased by $27,836, or 5.0%, to $582,639 from $554,803 for the comparable 2025 period. The increases were primarily due to rate increases earning into top-line results.
The effect of reinsurance on net written and net earned premiums is presented in the following table.
Three Months Ended June 30, Six Months Ended June 30,
2026 2025 2026 2025
Written Premiums
Direct $ 341,835 $ 345,829 $ 641,610 $ 644,799
Assumed 6,059 5,675 12,715 12,480
Ceded (34,384) (32,029) (65,384) (63,024)
Net written premiums $ 313,510 $ 319,475 $ 588,941 $ 594,255
Earned Premiums
Direct $ 317,749 $ 308,901 $ 631,682 $ 605,720
Assumed 5,717 5,286 12,700 12,011
Ceded (31,813) (32,074) (61,743) (62,928)
Net earned premiums $ 291,653 $ 282,113 $ 582,639 $ 554,803
Net Investment Income. Net investment income for the three months ended June 30, 2026 increased $835, or 5.3%, to $16,559 from $15,724 for the comparable 2025 period. Net investment income for the six months ended June 30, 2026 increased by $3,299, or 10.9%, to $33,597 from $30,298 for the comparable 2025 period. The increase for the three and six months ended June 30, 2026, compared to the same periods in 2025, is primarily driven by higher assets under management, reinvestment rates that exceeded the yields on maturing securities, and strong alternative asset returns. Net effective annualized yield on the investment portfolio was 4.0% for the three months June 30, 2026 compared to 4.2% for the comparable 2025 period. Net effective annualized yield on the investment portfolio was 4.1% for the six months ended June 30, 2026 compared to 4.0% for the comparable 2025 period. The investment portfolio’s duration on fixed maturities was 3.8 years at June 30, 2026 compared to 3.9 years at December 31, 2025.
Earnings from Partnership Investments. Earnings from partnership investments were $3,329 for the three months ended June 30, 2026 compared to $346 for the comparable 2025 period. Earnings from partnership investments were $7,234 for the six months ended June 30, 2026 compared to $2,458 for the comparable 2025 period. The year-over-year increase reflects higher investment appreciation and the impact of timing differences between valuation changes and the recognition of realized gains. Cash distributions received from partnerships may not correspond to earnings recognized in the same period, as gains are typically recognized over time based on changes in fair value. The timing and magnitude of these returns can vary depending on the performance and transactional activity of the underlying partnerships.
Net Realized Gains on Investments. Net realized gains on investments were $1,418 for the three months ended June 30, 2026 compared to $2,131 for the comparable 2025 period. Net realized gains on investments was $8,049 for the six months ended June 30, 2026 compared to $6,394 for the comparable 2025 period. The increase in net realized gains during the six-month period reflects the sale of equity securities in a gain position during the first quarter of 2026.
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The gross unrealized gains and losses on investments in fixed maturity securities, including redeemable preferred stocks that have characteristics of fixed maturities, short term investments, equity securities, including interests in mutual funds, and other invested assets were as follows for the periods indicated:
As of June 30, 2026
Cost or Allowance for Gross Unrealized Estimated
Amortized Expected Credit Fair
Cost Losses Gains Losses (3) Value
U.S. Treasury securities $ 4,209 $ — $ 4 $ (46) $ 4,167
Obligations of states and political subdivisions 38,814 — 287 (1,820) 37,281
Residential mortgage-backed securities (1) 372,628 — 2,641 (17,622) 357,647
Commercial mortgage-backed securities 157,196 — 255 (7,072) 150,379
Other asset-backed securities 190,732 — 315 (1,318) 189,729
Corporate and other securities 601,789 (355) 2,822 (14,865) 589,391
Subtotal, fixed maturity securities 1,365,368 (355) 6,324 (42,743) 1,328,594
Equity securities (2) 189,372 — 25,530 (12,946) 201,956
Other invested assets (4) 154,036 — — — 154,036
Totals $ 1,708,776 $ (355) $ 31,854 $ (55,689) $ 1,684,586
(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 includes 833 securities in an unrealized loss position at June 30, 2026.
(4)Other invested assets are generally accounted for under the equity method which approximated fair value.
The composition of our fixed income security portfolio as defined by nationally recognized rating agencies was as follows:
As of June 30, 2026
Estimated
Fair Value Percent
U.S. Treasury securities and obligations of U.S. Government agencies $ 357,648 27.0 %
Aaa/Aa 336,155 25.3
A 301,846 22.7
Baa 232,016 17.5
Ba 45,775 3.4
B 50,756 3.8
Caa/Ca 601 —
Not rated 3,797 0.3
Total $ 1,328,594 100.0 %
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 June 30, 2026, 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 high yield bonds.
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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 June 30, 2026.
As of June 30, 2026
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 $ 2,078 $ 31 $ 1,487 $ 15 $ 3,565 $ 46
Obligations of states and political subdivisions 10,146 104 10,603 1,716 20,749 1,820
Residential mortgage-backed securities 66,891 769 140,933 16,853 207,824 17,622
Commercial mortgage-backed securities 29,577 467 94,468 6,605 124,045 7,072
Other asset-backed securities 89,238 296 6,350 1,022 95,588 1,318
Corporate and other securities 272,833 3,708 145,466 11,157 418,299 14,865
Subtotal, fixed maturity securities 470,763 5,375 399,307 37,368 870,070 42,743
Equity securities 74,420 11,250 4,790 1,696 79,210 12,946
Total temporarily impaired securities $ 545,183 $ 16,625 $ 404,097 $ 39,064 $ 949,280 $ 55,689
As of June 30, 2026 the Company concluded that $355 of unrealized losses were due to credit factors and were recorded as an allowance for expected credit losses. As of December 31, 2025, the Company concluded that none of the unrealized losses in the fixed maturity portfolio were due to credit factors; therefore, no allowance for credit losses was reported. The Company concluded that outside of the securities that were recognized as credit impaired, the unrealized losses recorded on the fixed maturity portfolio at June 30, 2026 and December 31, 2025 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 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 1—Financial Statements, Note 5, Investments, of this Form 10-Q.
Commission Income: Commission income includes revenues from new and renewal commissions paid by insurance carriers, which we recognize when earned. Commission income was $2,252 and $2,285 for the three months ended June 30, 2026 and 2025, respectively. Commission income was $4,402 and $4,380 for the six months ended June 30, 2026 and 2025, respectively. The year-over-year change is driven by 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 for the three months ended June 30, 2026 decreased by $727, or 11.2%, to $5,758 from $6,485 for the comparable 2025 period. Finance and other service income for the six months ended June 30, 2026, decreased by $1,213, or 9.5%, to $11,559 from $12,772 for the comparable 2025 period. The decrease is primarily driven by the decline in policy counts.
Losses and Loss Adjustment Expenses. Losses and loss adjustment expenses incurred for the three months ended June 30, 2026 increased by $887, or 0.5%, to $195,119 from $194,232 for the comparable 2025 period. Losses and loss adjustment expenses incurred for the six months ended June 30, 2026 increased by $58,087, or 15.1%, to $442,609 from $384,522 for the comparable 2025 period.
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Our GAAP loss ratio for the three months ended June 30, 2026 decreased to 66.9% from 68.8% for the comparable 2025 period. Our GAAP loss ratio for the six months ended June 30, 2026 increased to 76.0% from 69.3% for the comparable 2025 period. Our GAAP loss ratio excluding loss adjustment expenses for the three months ended June 30, 2026 was 59.5% compared to 60.9% for the comparable 2025 period. Our GAAP loss ratio excluding loss adjustment expenses for the six months ended June 30, 2026 was 67.6% compared to 61.1% for the comparable 2025 period. Total prior year favorable development included in the pre-tax results for the three months ended June 30, 2026 was $10,569 compared to $11,235 for the comparable 2025 period. Total prior year favorable development included in the pre-tax results for the six months ended June 30, 2026 was $21,118 compared to $23,473 for the comparable 2025 period.
Underwriting, Operating and Related Expenses. Underwriting, operating and related expenses for the three months ended June 30, 2026 increased by $1,087, or 1.3%, to $83,883 from $82,796 for the comparable 2025 period. Underwriting, operating and related expenses for the six months ended June 30, 2026 increased by $2,517, or 1.5%, to $166,164 from $163,647 for the comparable 2025 period. Our GAAP expense ratio for the three months ended June 30, 2026 decreased to 28.8% from 29.3% for the comparable 2025 period. Our GAAP expense ratio for the six months ended June 30, 2026 decreased to 28.5% from 29.5% for the comparable 2025 period. The decrease in the GAAP expense ratio during the three and six months ended June 30, 2026 was due to higher earned premium.
Interest Expense. Interest expense was $814 and $442 for the three months ended June 30, 2026 and 2025, respectively. Interest expense was $1,432 for the six months ended June 30, 2026 compared to $546 for the comparable 2025 period. The increase in interest expense is due to 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 of Boston loan that had a fixed rate of 1.42%.
Income Tax Expense. Our effective tax rate was 21.1% and 21.4% for the three months ended June 30, 2026 and 2025, respectively. The effective tax rate was 22.0% and 21.9% for the six months ended June 30, 2026 and 2025, respectively. The effective tax rate in 2026 was higher than the statutory rate primarily due to the effects of stock-based compensation and permanent differences regarding executive compensation.
Net Income. Net income for the three months ended June 30, 2026 was $34,517 compared to net income of $28,937 for the comparable 2025 period. Net income for the six months ended June 30, 2026 was $20,194 compared to $50,833 for the comparable 2025 period.
Non-GAAP Operating Income. Non-GAAP operating income, as defined above, was $29,674 for the three months ended June 30, 2026 compared to $21,519 for the comparable 2025 period. Non-GAAP operating income was $19,470 for the six months ended June 30, 2026 compared to $40,515 for the comparable 2025 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.
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 provided by operating activities was $21,294 and $35,496 during the six months ended 2026 and 2025, respectively. Our operations typically generate positive cash flows from operations as most premiums are received in advance of the time when claim and benefit payments are required. Positive operating cash flows are expected in the future to meet our liquidity requirements.
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Net cash used for investing activities was $323 and $18,217 during the six months ended June 30, 2026 and 2025, respectively. Fixed maturities, equity securities, and other invested assets purchased were $216,213 for the six months ended June 30, 2026 compared to $159,014 for the comparable prior year period. Proceeds from maturities, redemptions, calls and sales, of securities were $218,359 during the six months ended June 30, 2026 compared to $141,197 for the comparable prior year period.
Net cash used for financing activities was $26,954 and $26,844 during the six months ended June 30, 2026 and 2025, respectively. Net cash used for financing activities during the six months ended June 30, 2026 consisted of dividend payments to shareholders.
The Insurance Subsidiaries maintain a high degree of liquidity within their respective investment portfolios in fixed maturity and equity securities. We do not anticipate the need to sell these securities to meet the Insurance Subsidiaries cash requirements. We expect the Insurance Subsidiaries to generate sufficient operating cash to meet all short-term and long-term cash requirements. However, there can be no assurance that unforeseen business needs or other items will not occur causing us to have to sell securities before their values fully recover; thereby causing us to recognize additional impairment charges in that time period.
Credit Facility
For information regarding our Credit Facility, please refer to Item 1—Financial Statements, Note 9, Debt, of this Form 10-Q.
Recent Accounting Pronouncements
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 “Commissioner”). The Massachusetts statute limits the dividends an insurer may pay in any twelve-month period, without the prior permission of the Commissioner, to the greater of (i) 10% of the insurer’s surplus as of the preceding December 31 or (ii) the insurer’s net income for the twelve-month period ending the preceding December 31, in each case determined in accordance with statutory accounting practices. Our insurance company subsidiaries may not declare an “extraordinary dividend” (defined as any dividend or distribution that, together with other distributions made within the preceding twelve months, exceeds the limits established by Massachusetts statute) until thirty days after the Commissioner has received notice of the intended dividend and has not objected. As historically administered by the Commissioner, this provision requires the Commissioner’s prior approval of an extraordinary dividend. Under Massachusetts law, an insurer may pay cash dividends only from its unassigned funds, also known as earned surplus, and the insurer’s remaining surplus must be both reasonable in relation to its outstanding liabilities and adequate to its financial needs. At December 31, 2025, the statutory surplus of Safety Insurance was $833,432, and its statutory 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 six months ended June 30, 2026, Safety Insurance paid dividends to Safety of $26,897.
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.
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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 2026 were as follows:
Total
Declaration Record Payment Dividend per Dividends Paid
Date Date Date Common Share and Accrued
February 13, 2026 March 2, 2026 March 13, 2026 $ 0.92 $ 13,470
May 6, 2026 June 1, 2026 June 12, 2025 $ 0.92 $ 13,485
On August 5, 2026, our Board of Directors approved and declared a quarterly cash dividend of $0.92 per share which will be paid on September 15, 2026 to shareholders of record on September 1, 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.
On February 23, 2022, the Board of Directors approved a share repurchase program of up to $50,000 of the Company’s outstanding common shares. As of June 30, 2026, the Board of Directors has cumulatively authorized increases to the existing share repurchase program of up to $200,000 of its outstanding common shares. Under the program, the Company may repurchase shares of its common stock for cash in public or private transactions, in the open market or otherwise. The timing of such repurchases and actual number of shares repurchased will depend on a variety of factors including price, market conditions and applicable regulatory and corporate requirements. The program does not require us to repurchase any specific number of shares and may be modified, suspended or terminated at any time without prior notice. No share repurchases were made by the Company under the program during the three and six months ended June 30, 2026. As of June 30, 2026 and December 31, 2025, the Company had purchased 3,478,060 shares of common stock at a cost of $175,240.
Under the program, Safety may repurchase shares of its common stock for cash in public or private transactions, in the open market or otherwise, at management’s discretion. The timing of such repurchases and actual number of shares repurchased will depend on a variety of factors including price, market conditions and applicable regulatory and corporate requirements. The program does not require Safety to repurchase any specific number of shares and may be modified, suspended or terminated at any time without prior notices.
Management believes that the current level of cash flow from operations provides us with sufficient liquidity to meet our operating needs over the next 12 months. We expect to be able to continue to meet our operating needs after the next 12 months from internally generated funds. Since our ability to meet our obligations in the long term (beyond such twelve-month period) is dependent upon such factors as market changes, insurance regulatory changes and economic conditions, no assurance can be given that the available net cash flow will be sufficient to meet our operating needs. We expect that we would need to borrow or issue capital stock if we needed additional funds, for example, to pay for an acquisition or a significant expansion of our operations. There can be no assurance that sufficient funds for any of the foregoing purposes would be available to us at such time.
Risk-Based Capital Requirements
The NAIC has adopted a formula and model law to implement risk-based capital requirements for most property and casualty insurance companies, which are designed to determine minimum capital requirements and to raise the level of protection that statutory surplus provides for policyholder obligations. Under Massachusetts law, insurers having less total adjusted capital than that required by the risk-based capital calculation will be subject to varying degrees of regulatory action, depending on the level of capital inadequacy. The risk-based capital law provides for four levels of regulatory action. The extent of regulatory intervention and action increases as the level of total adjusted capital to risk-based capital falls. As of December 31, 2025, the Insurance Subsidiaries had total capital of $833,432, which is in excess of amounts requiring company or regulatory action at any prescribed risk-based capital action level. Minimum statutory capital and surplus, or company action level risk-based capital, was $232,798 at December 31, 2025.
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Off-Balance Sheet Arrangements
We have no material obligations under a guarantee contract meeting the characteristics identified in Accounting Standards Codification (“ASC”) 460, Guarantees. We have no material retained or contingent interests in assets transferred to an unconsolidated entity. We have no material obligations, including contingent obligations, under contracts that would be accounted for as derivative instruments. We have no obligations, including contingent obligations, arising out of a variable interest in an unconsolidated entity held by, and material to, us, where such entity provides financing, liquidity, market risk or credit risk support to, or engages in leasing, hedging or research and development services with us. We have no direct investments in real estate and no holdings of mortgages secured by commercial real estate. Accordingly, we have no material off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Loss and Loss Adjustment Expense Reserves
Significant periods of time can elapse between the occurrence of an insured loss, the reporting to us of that loss and our final payment of that loss. To recognize liabilities for unpaid losses, we establish reserves as balance sheet liabilities. Our reserves represent estimates of amounts needed to pay reported and estimated losses incurred but not yet reported (“IBNR”) and the expenses of investigating and paying those losses, or loss adjustment expenses. Every quarter, we review our previously established reserves and adjust them, if necessary.
When a claim is reported, claims personnel establish a “case reserve” for the estimated amount of the ultimate payment. The amount of the reserve is primarily based upon an evaluation of the type of claim involved, the circumstances surrounding each claim and the policy provisions relating to the loss. The estimate reflects the informed judgment of such personnel based on general insurance reserving practices and on the experience and knowledge of the claims person. During the loss adjustment period, these estimates are revised as deemed necessary by our claims department based on subsequent developments and periodic reviews of the cases. When a claim is closed with or without a payment, the difference between the case reserve and the settlement amount creates a reserve deficiency if the payment exceeds the case reserve or a reserve redundancy if the payment is less than the case reserve.
In accordance with industry practice, we also maintain reserves for IBNR. IBNR reserves are determined in accordance with commonly accepted actuarial reserving techniques on the basis of our historical information and experience. We review and make adjustments to incurred but not yet reported reserves quarterly. In addition, IBNR reserves can also be expressed as the total loss reserves required less the case reserves on reported claims.
When reviewing reserves, we analyze historical data and estimate the impact of various loss development factors, such as our historical loss experience and that of the industry, trends in claims frequency and severity, our mix of business, our claims processing procedures, legislative enactments, judicial decisions, legal developments in imposition of damages, and changes and trends in general economic conditions, including the effects of inflation. A change in any of these factors from the assumption implicit in our estimate can cause our actual loss experience to be better or worse than our reserves, and the difference can be material. There is no precise method, however, for evaluating the impact of any specific factor on the adequacy of reserves, because the eventual development of reserves is affected by many factors.
In estimating all our loss reserves, we follow the guidance prescribed by ASC 944, Financial Services – Insurance.
Management determines our loss and loss adjustment expense (“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.
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Our key factors and resulting assumptions are the ultimate frequency and severity of claims, based upon the most recent ten years of claims reported to the Company, and the data CAR reports to us to calculate our share of the residual market, as of the date of the applicable balance sheet. For each accident year and each coverage within a line of business our actuaries calculate the ultimate losses incurred. Our total reserves are the difference between the ultimate losses incurred and the cumulative loss and loss adjustment payments made to date. Our IBNR reserves are calculated as the difference between our total reserves and the outstanding case reserves at the end of the accounting period. To determine ultimate losses, our actuaries calculate a range of indications and select a point estimation using such actuarial techniques as:
● Paid Loss Indications: This method projects ultimate loss estimates based upon extrapolations of historic paid loss trends. This method tends to be used on short tail lines such as automobile physical damage.
● Incurred Loss Indications: This method projects ultimate loss estimates based upon extrapolations of historic incurred loss trends. This method tends to be used on long tail lines of business such as automobile liability and homeowner’s liability.
● Bornhuetter-Ferguson Indications: This method projects ultimate loss estimates based upon extrapolations of an expected amount of IBNR, which is added to current incurred losses or paid losses. This method tends to be used on small, immature, or volatile lines of business, such as our business owner policy 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 $616,475 to $685,439 as of June 30, 2026. 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 $657,605 as of June 30, 2026.
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 June 30, 2026.
As of June 30, 2026
Line of Business Low Recorded High
Private passenger automobile $ 287,763 $ 306,207 $ 315,253
Commercial automobile 125,261 137,023 148,449
Homeowners 137,481 141,871 143,569
All other 65,970 72,504 78,168
Total $ 616,475 $ 657,605 $ 685,439
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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 June 30, 2026.
As of June 30, 2026
Line of Business Case IBNR Total
Private passenger automobile $ 349,863 (43,664) $ 306,199
CAR assumed private passenger auto 1 7 8
Commercial automobile 94,608 7,251 101,859
CAR assumed commercial automobile 21,527 13,637 35,164
Homeowners 158,838 (16,967) 141,871
All other 59,774 12,730 72,504
Total net reserves for losses and LAE $ 684,611 $ (27,006) $ 657,605
At June 30, 2026, our total IBNR reserves for our private passenger automobile line of business was comprised of ($85,210) related to estimated ultimate decreases in the case reserves, including anticipated recoveries (i.e. salvage and subrogation), and $41,546 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 38.8% of our total reserves for CAR assumed commercial automobile business as of June 30, 2026, 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 June 30, 2026.
As of June 30, 2026
Line of Business Retained Assumed Net
Private passenger automobile $ 306,199
CAR assumed private passenger automobile $ 8
Net private passenger automobile $ 306,207
Commercial automobile 101,859
CAR assumed commercial automobile 35,164
Net commercial automobile 137,023
Homeowners 141,871 — 141,871
All other 72,504 — 72,504
Total net reserves for losses and LAE $ 622,433 $ 35,172 $ 657,605
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 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 and gains, 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.
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.
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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 six months ended June 30, 2026, a 1 percentage-point change in the loss and LAE ratio would result in a change in reserves of $5,825. Each 1 percentage-point change in the loss and LAE ratio would have had a $4,602 effect on net income, or $0.32 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 six months ended June 30, 2026. 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 $ (6,124) $ (3,062) $ —
Estimated increase in net income 4,838 2,419 —
No Change in Severity
Estimated (decrease) increase in reserves (3,062) — 3,062
Estimated increase (decrease) in net income 2,419 — (2,419)
+1 Percent Change in Severity
Estimated increase in reserves — 3,062 6,124
Estimated decrease in net income — (2,419) (4,838)
Commercial automobile retained loss and LAE reserves
-1 Percent Change in Severity
Estimated decrease in reserves (2,037) (1,019) —
Estimated increase in net income 1,609 805 —
No Change in Severity
Estimated (decrease) increase in reserves (1,019) — 1,019
Estimated increase (decrease) in net income 805 — (805)
+1 Percent Change in Severity
Estimated increase in reserves — 1,019 2,037
Estimated decrease in net income — (805) (1,609)
Homeowners retained loss and LAE reserves
-1 Percent Change in Severity
Estimated decrease in reserves (2,837) (1,419) —
Estimated increase in net income 2,241 1,121 —
No Change in Severity
Estimated (decrease) increase in reserves (1,419) — 1,419
Estimated increase (decrease) in net income 1,121 — (1,121)
+1 Percent Change in Severity
Estimated increase in reserves — 1,419 2,837
Estimated decrease in net income — (1,121) (2,241)
All other retained loss and LAE reserves
-1 Percent Change in Severity
Estimated decrease in reserves (1,450) (725) —
Estimated increase in net income 1,146 573 —
No Change in Severity
Estimated (decrease) increase in reserves (725) — 725
Estimated increase (decrease) in net income 573 — (573)
+1 Percent Change in Severity
Estimated increase in reserves — 725 1,450
Estimated decrease in net income — (573) (1,146)
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 six months ended June 30, 2026. 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 $ (352) $ 352
Estimated increase (decrease) in net income 278 (278)
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 $21,118 and $23,473 during the six months ended June 30, 2026 and 2025, respectively.
The following table presents a comparison of prior year development of our net reserves for losses and LAE for the six months ended June 30, 2026 and 2025. 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.
Six Months Ended June 30,
Accident Year 2026 2025
2016 & prior $ (76) $ (907)
2017 (68) (222)
2018 (531) (232)
2019 (47) (1,179)
2020 387 (1,628)
2021 1,864 (1,978)
2022 877 (2,516)
2023 (1,173) (7,256)
2024 (6,519) (7,555)
2025 (15,832) —
All prior years $ (21,118) $ (23,473)
The decreases in prior years’ reserves during the six months ended June 30, 2026 and 2025 resulted from re-estimations of prior year ultimate loss and LAE liabilities. The 2026 decrease is composed of reductions of $7,713 in our private passenger automobile reserves, $3,695 in our commercial automobile reserves, $7,361 in our homeowners reserves, and $2,349 in our other lines reserves. The 2025 decrease is primarily composed of reductions of $3,249 in our private passenger automobile reserves, $3,909 in our commercial automobile reserves, $9,266 in our homeowners reserves, and $7,049 in our other lines reserves.
The following table presents information by line of business for prior year development of our net reserves for losses June 30, 2026.
Private Passenger Commercial
Accident Year Automobile Automobile Homeowners All Other Total
2016 & prior $ (42) $ 1 $ (7) $ (28) $ (76)
2017 — (6) 2 (64) (68)
2018 18 (19) (297) (233) (531)
2019 150 (7) 9 (199) (47)
2020 928 (56) (235) (250) 387
2021 1,776 (133) (117) 338 1,864
2022 735 682 (183) (357) 877
2023 646 (565) (2,133) 879 (1,173)
2024 (1,945) (1,218) (2,883) (473) (6,519)
2025 (9,979) (2,374) (1,517) (1,962) (15,832)
All prior years $ (7,713) $ (3,695) $ (7,361) $ (2,349) $ (21,118)
The improved private passenger and commercial automobile results were primarily due to fewer claims than previously estimated and better than previously estimated severity on our established bodily injury and property damage
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case reserves. Our retained other than auto and homeowners lines of business prior year reserves decreased, due primarily to fewer claims than previously estimated.
For further information, see “Results of Operations: Losses and Loss Adjustment Expenses.”
Investment Impairments
We use 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 likely than not that we 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.
For fixed maturities that we do not intend to sell or for which it is more likely than not that we would not be required to sell before an anticipated recovery in value, we separate the expected credit loss component of the impairment from the amount related to all other factors. The expected credit loss component is recognized as an allowance for expected credit losses. The allowance is adjusted for any additional credit losses and subsequent recoveries, which are booked in income as either credit loss expense or credit loss benefit, respectively. Upon recognizing a credit loss, the cost basis is not adjusted. The impairment related to all other factors (non-credit factors) is reported in other comprehensive income.
For further information, see “Results of Operations.”
Forward-Looking Statements
Forward-looking statements might include one or more of the following, among others:
● Projections of revenues, income, earnings per share, capital expenditures, dividends, capital structure or other financial items;
● Descriptions of plans or objectives of management for future operations, products or services;
● Forecasts of future economic performance, liquidity, need for funding and income;
● Legal and regulatory commentary;
● Descriptions of assumptions underlying or relating to any of the foregoing; and
● Future performance of credit markets.
Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “aim,” “projects,” or words of similar meaning and expressions that indicate future events and trends, or future or conditional verbs such as “will,” “would,” “should,” “could,” or “may.” All statements that address expectations or projections about the future, including statements about the Company’s strategy for growth, product development, market position, expenditures and financial results, are forward-looking statements.
Forward-looking statements are not guarantees of future performance. By their nature, forward-looking statements are subject to risks and uncertainties. There are a number of factors, many of which are beyond our control, that could cause actual future conditions, events, results or trends to differ significantly and/or materially from historical results or those projected in the forward-looking statements. These factors include but are not limited to:
● The competitive nature of our industry and the possible adverse effects of such competition;
● Conditions for business operations and restrictive regulations in Massachusetts;
● The possibility of losses due to claims resulting from severe weather;
● The impact of inflation, changes in tariffs and supply chain delays on loss severity;
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● 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;
● The impact of investment, economic and underwriting market conditions, including interest rates and inflation;
● Our possible need for and availability of additional financing, and our dependence on strategic relationships, among others; and
● Other risks and factors identified from time to time in our reports filed with the SEC. Refer to Part II, Item 1A – Risk Factors in this Quarterly report on Form 10-Q and Part I, Item 1A — Risk Factors of our 2025 Annual Report on Form 10-K for the year ended December 31, 2025.
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.