SAFT 10-K & 10-Q changes, risk factors and insider trading

Massachusetts, New Hampshire and Maine require that all licensed property and casualty insurers bear a portion of the losses suffered by some insureds as a result of impaired or insolvent insurance companies by participating in each state’s insolvency fund. Members of the state’s insolvency fund are assessed a proportionate share of the obligations and expenses of the fund in connection with an insolvent insurer. These assessments are made by the fund to cover the cost of paying eligible claims of policyholders of these insolvent insurers. Similarly, assessments are made by each state’s commercial automobile insurance residual market mechanism to recover the shares of net losses that would have been assessed to the insolvent companies but for their insolvencies. In addition, Massachusetts has established an underwriting association in order to ensure that property insurance is available for owners of high risk property who are not able to obtain insurance from private insurers. The losses of this underwriting association, the Massachusetts Property Insurance Underwriting Association, are shared by all insurers that write property and casualty insurance in Massachusetts. We are assessed from time to time to pay these losses. The effect of these assessments could reduce our profitability in any given period and limit our ability to grow our business.

Our private passenger automobile business is concentrated in in New England:

AlmostA allmajority of our direct written premiums are currently generated in Massachusetts. Our revenues and profitability are therefore subject to prevailing regulatory, economic, demographic, competitive and other conditions in Massachusetts. Changes in any of these conditions could make it more costly or difficult for us to conduct our business. The Massachusetts market has seen an increased level of competition, particularly in the private passenger automobile insurance line, due to prior changes in regulatory conditions. To date, we have not had a significant decrease in our private passenger automobile insurance business. However, further competition and adverse results could include loss of market share, decreased revenue, and/or increased costs.

We may not be able to successfully alleviate risk through reinsurance arrangementsarrangements, which could cause us to reduce our premiums written in certain lines or could result in losses.

Our highly automated and networked organization is subject to cyber-terrorism and a variety of other cyber-security threats. These threats come in a variety of forms, such as viruses and malicious software. Such threats can be difficult to prevent or detect, and if experienced, could interrupt or damage our operations, harm our reputation or have a material effect on our operations. Our technology and telecommunications systems are highly integrated and connected with other networks. Cyber-attacks involving these systems could be carried out remotely and from multiple sources and could interrupt, damage or otherwise adversely affect the operations of these critical systems. In addition, the rapid evolution and increased adoption of AI technologies may heighten our cybersecurity risks by making cyber-attacks more difficult to detect, contain and mitigate. Cyber-attacks could result in the modification or theft of data, the distribution of false information or the denial of service to users. The risks of cyber-attacks could be exacerbated by geopolitical tensions, including hostile actions taken by nation-states and terrorist organizations. We obtain, utilize and maintain data concerning individuals and organizations with which we have a business relationship. Threats to data security can emerge from a variety of sources and change in rapid fashion, resulting in the ongoing need to expend resources to secure our data in accordance with customer expectations and statutory and regulatory requirements.

Our results of operations depend in part on the performance of our invested assets. As of December 31, 2024,2025, based upon fair value measurement, 73.8%77.9% of our investment portfolio was invested in fixed maturity securities, 14.6%13.1% in equity securities, 10.3%and 9.0% in other invested assets, and 1.3% in short term investments.assets. Certain risks are inherent in connection with debt securities including loss upon default and price volatility in reaction to changes in interest rates and general market factors. Changes in interest rates affect the carrying value of our fixed maturity investments and returns on our fixed maturity investments. A decline in interest rates reduces the returns available on new fixed maturity investments (including those purchases to re-invest maturities from the existing portfolio), thereby negatively impacting our net investment income on a going-forward basis, while rising interest rates reduce the market value of existing fixed maturity investments, thereby negatively impacting our book value.

We have a significant investment portfolio and adverse capital market conditions, including but not limited to volatility and credit spread changes, will impact the liquidity and value of our investments, potentially resulting in higher realized or unrealized losses. Values of our investments can also be impacted by reductions in price transparency and changes in investor confidence and preferences, potentially resulting in higher realized or unrealized losses. If the carrying value of our investments exceeds the fair value, and the decline in fair value is deemed to be other-than-temporary, we will be required to write down the value of our investments, which could materially harm our results of operations or financial condition.condition

The following discussion contains forward-looking statements. We intend statements which are not historical in nature to be,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.

We are a leading provider of private passenger automobile (55.8%54.9% of our direct written premiums in 20242025), commercial automobile, (15.2% of 20242025 direct written premiums), and homeowners (24.3%25.2% of 20242025 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 20242025 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 828797 in 1,0791,063 locations throughout these three states during 2024.2025. We have used these relationships and our extensive knowledge of the market to become the thirdfourth largest private passenger automobile carrier and the second largest commercial automobile carrier in Massachusetts, capturing an approximate 9.7%9.4% and 12.9%13.0% share, respectively, of the Massachusetts private passenger and commercial automobile markets in 2024,2025, 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 6.3%7.0% in 2023.2024.

Direct and Net Written Premiums. For the quarter ended December 31, 2024, the Company achieved its ninth consecutive quarter of double-digit growth in direct and net written premiums. For the three months ended December 31, 2024,2025, direct written premium growth and net written premium growth were 18.7%2.6% and 12.9%,6.5%, respectively. For the year ended December 31, 2024,2025, direct written premium growth and net written premium growth were 20.4%7.2% and 18.2%,7.5%, respectively. The increase in premium is driven by new business production, improved retention, and rate increases. For the year ended December 31, 2024,2025, theaverage Companywritten achievedpremium per policy countincreased growth8.1%, across all lines of business, including 10.0%, 4.5%4.6% and 8.7%9.7% in Private Passenger Automobile, Commercial Automobile and Homeowners lines, respectively, compared to the same period in 2023. Additionally, for the year ended December 31, 2024, average written premium per policy increased 14.1%, 10.7% and 8.9% in Private Passenger Automobile, Commercial Automobile and Homeowners lines, respectively, compared to the same period in 2023.2024.

Losses and Loss Adjustment Expenses. Losses and loss adjustment expenses incurred for the three months ended December 31, 20242025 increased by $20,902,$14,671, or 12.1%,7.6%, to $193,007$207,678 from $172,105$193,007 for the comparable 20232024 period. Losses and loss adjustment expenses incurred for the year ended December 31, 20242025 increased by $74,335,$80,545, or 11.6%,11.2%, to $716,637$797,182 from $642,302$716,637 for the comparable 20232024 period. The increase in losses for theboth three months ended and yearperiods ended December 31, 20242025 is primarily driven by our larger policy counts.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, 20242025 were 70.8%, 28.6%, and 99.4%, respectively, compared to 71.7%, 30.2%, and 101.9%, respectively, compared to 76.1%, 30.4%, and 106.5%, respectively, for the comparable 20232024 period. Loss, expense, and combined ratios calculated under U.S. generally accepted accounting principlesGAAP for the year ended December 31, 20242025 were 70.0%, 29.0%, and 99.0%, respectively, compared to 70.9%, 30.2%, and 101.1%, respectively, compared to 77.0%, 30.7%, and 107.7%, respectively, for the comparable 20232024 period. The 20242025 decrease in the loss ratioratios is primarily due to the moderation of loss severity in Private Passenger Automobile, growth in earned premiums, andslightly favorableoffset priorby year development. Additionally, the prior yearincreased loss ratio for the year ended December 31, 2023 was impacted by two severe weather events, totaling $41,178.severity. The 2024 decrease in the expense ratios in both periods is primarily driven by the increasegrowth in net earned premium.premiums.

Our results are reported in accordance with generally accepted accounting principles (“GAAP”),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:

Direct Written Premiums. Direct written premiums for the year ended December 31, 20242025 increased by $201,833,$85,548, or 20.4%,7.2%, to $1,193,057$1,278,605 from $991,224$1,193,057 for the comparable 20232024 period. The increase in direct written premium is theprimarily resultdriven of new business production, improved retention, andby rate increases. For the year ended December 31, 2024,2025, theaverage Companywritten achievedpremium per policy countincreased growth8.1%, across all lines of business, including 10.0%, 4.5%4.6% and 8.7%9.7% in Private Passenger Automobile, Commercial Automobile and Homeowners lines, respectively, compared to the same period in 2023. Additionally, for the year ended December 31, 2024, average written premium per policy increased 14.1%, 10.7% and 8.9% in Private Passenger Automobile, Commercial Automobile and Homeowners lines, respectively, compared to the same period in 2023.2024.

Net Investment Income. Net investment income for the year ended December 31, 20242025 decreasedincreased by $657,$7,012, or 1.2%,12.6%, to $55,720$62,732 from $56,377$55,720 for the comparable 20232024 period. The decreaseincrease iswas aprimarily resultdriven ofby decreaseshigher dueassets tounder management, reinvestment rates that exceeded the earnedyields intereston frommaturing our higher yield bondssecurities, and variablestrong ratealternative securedasset and senior bank loans.returns. Net effective annual yield on the investment portfolio was 3.9%4.0% for the year ended December 31, 2024,2025, compared to 4.0%3.9% for comparable 20232024 period. Our duration was 3.9 years at December 31, 2025, compared to 3.5 years at December 31, 2024, compared to 3.6 years at December 31, 2023.2024.

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 compared to $5,540 for the year ended December 31, 2023.2024. The 20242025 earnings reflect ana increasedecrease 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 $7,720$17,982 for the year ended December 31, 20242025 compared to $1,327$7,720 for the comparable 20232024 period. The increase iswas primarily driven by highergains realized gains from the sale of mutual fund holdings within our equity securitiessecurity compared to prior years.portfolio.

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

(1) Residential mortgage-backed securities consistsconsist 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).

As of December 31, 2024,2025, our portfolio ofthe fixed maturity investmentsportfolio was principallyprimarily comprisedcomposed of investment ‑grade corporate fixed maturity securities, U.S. government and agency securities, asset‑backed securities, and asset-backedinvestment‑grade securities.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 non‑investment‑grade portfolio of fixed maturity investmentsportfolio is primarily comprised of variable rate secured and senior bank loans and high ‑yield bonds.

The Company’s analysis of its fixed maturity portfolio atas of December 31, 20242025 concluded that $1,198none of the unrealized losses in the fixed maturity portfolio were due to credit factors; andtherefore, wereno allowance for credit losses was recorded ascompared to an allowance forof expected$1,198 creditas losses atof December 31, 2024, compared to $1,208 at December 31, 2023.2024. The Company concluded thatthat, outsideother of thethan securities thatpreviously were recognizedidentified as credit impaired,credit-impaired, the unrealized losses recorded on the fixed maturity portfolio at December 31, 20242025 and 20232024 resultedwere fromdriven fluctuationsby 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.

Commission Income: Commission income includes revenues from new and renewal commissions paid by insurance carriers, which we recognize when earned. Commission income was $7,942$9,498 and $6,932$7,942 for the years ended December 31, 20242025 and 2023,2024, respectively. The year-over-year change is driven by policy count growth and increased premium rates across the property and casualty insurance market.

Our GAAP loss ratio for the years ended December 31, 20242025 and 20232024 were 70.9%70.0% and 77.0%,70.9%, respectively. Our GAAP loss ratio excluding loss adjustment expenses was 62.6%62.3% and 67.9%62.6% for the years ended December 31, 20242025 and 2023,2024, respectively. Total prior year favorable development included in the pre-tax results for the year ended December 31, 20242025 was $51,894,$44,552, compared to $47,381$51,894 for the comparable 20232024 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, 20242025 increased by $48,742,$25,074, or 19.0%,8.2%, to $305,322$330,396 from $256,580$305,322 for the comparable 20232024 period. The increase is driven by an increase in base commissions resulting from the increase in written premiums, offset by a decrease in contingent commission expense.premiums. Our GAAP expense ratio for the year ended December 31, 20242025 decreased to 30.2%29.0% from 30.7%30.2% for the comparable 20232024 period.period due to higher earned premium.

Net cash used for investing activities was $125,706 and $54,541 during the yearyears ended December 31, 20242025 comparedand to2024, netrespectively. Net cash provided by investing activities ofwas $24,269 for December 31, 2023, and net cash used for investing activities of $19,988 for the year ended December 31, 2022.2023. This fluctuation was driven by purchases exceeding proceeds from sales, paydowns, calls and maturities of fixed maturity and equity securities in 2024.2025.

Net cash used for financing activities was $53,865, $53,325, $63,531, and $62,641$63,531 during the years ended December 31, 2024,2025, 20232024 and 2022,2023, respectively. Net cash used for financing activities during the year ended December 31, 20242025 consisted of dividend payments to shareholders.shareholders, the acquisition of treasury stock and payments on a loan that matured during the year, partially offset by proceeds from a new loan.

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 2024,2025, the statutory surplus of Safety Insurance was $758,789,$833,432, and its net income for 20242025 was $43,387.$83,092. As a result, a maximum of $75,879$83,343 is available in 20242026 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 $682,910$750,089 at December 31, 2024.2025. During the twelve months ended December 31, 2024,2025, Safety Insurance recordedpaid dividends to Safety of $51,123.$51,993.

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.

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.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.

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,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 2025,2025 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 in 2024.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 JuneJuly 20,15, 2025.2026.

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. The table below shows the amount of direct written premiums written in each state during the three months ended March 31, 2026 and 2025.

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 and through January 26, 2026, the Northeast region experienced a severe winter weather event (“January Winter Storm”),event, which developed into a nor’easter, bringing blizzard conditions including excess snowfall, subzero windchill 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 January Winter Storm,Storms, the Company received approximately 1,2001,800 reported claims totaling $32,573$42,736 of losses and loss adjustment expenses for the threesix months ended March,June 31,30, 2026.

Direct and Net Written Premiums. For the three months ended MarchJune 31,30, 2026, direct written premium growth and net written premium growthdecreased were 0.3%1.2% and 0.2%,1.9%, respectively.respectively, compared to the prior period. The increasedecrease inwas premiumprimarily isdue drivento bythe ratecancellation increases.of certain underperforming agency relationships. For the threesix months ended MarchJune 31,30, 2026, averagethe 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 4.0%,2.9%, 6.1%6.4% and 9.9%10.9% in Private Passenger Automobile, Commercial Automobile and Homeowners lines, respectively, comparedprimarily toreflecting therate same period in 2025.increases.

Losses and Loss Adjustment Expenses. Losses and loss adjustment expenses incurred for the three months ended MarchJune 31,30, 2026 increased by $57,200$887, or 30.1%,0.5%, to $247,490$195,119 from $190,290$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 MarchJune 31,30, 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 85.1%76.0% from 69.8%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 primarily due to the impact of the Winter Storms.

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 MarchJune 31,30, 2026, there were 160,334 shares available for future grant.

A summary of share based awards granted under the Incentive Plan during the threesix months ended MarchJune 31,30, 2026 is as follows:

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

At MarchJune 31,30, 2026, we had $179,203$181,032 recoverable from CARCAR, comprisedwhich consisted of loss adjustment expense reserves, unearned premiums and reinsurance recoverable.

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 (loss) and earnings (loss) per diluted share are the GAAP financial measures that are most directly comparable to non-GAAP operating income (loss) and non-GAAP operating income (loss) per diluted share, respectively. A reconciliation of the GAAP financial measures to these non-GAAP measures is included in the financial highlights below.

Three and Six Months Ended MarchJune 31,30, 2026 comparedCompared to Three and Six Months Ended MarchJune 31,30, 2025

Direct Written Premiums. Direct written premiums for the three months ended MarchJune 31,30, 2026 increaseddecreased by $805,$3,994, or 0.3%,1.2%, to $299,775$341,835 from $298,970$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 increasedecreases in direct written premiums isand net written premiums reflect lower policy counts resulting from the resultcancellation of ratecertain increases.underperforming agency relationships. For the threesix months ended MarchJune 31,30, 2026, average written premium per policy increased 4.0%,2.9%, 6.1%6.4% and 9.9%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 MarchJune 31,30, 2026 increaseddecreased by $651,$5,965, or 0.2%,1.9%, to $275,431$313,510 from $274,780$319,475 for the comparable 2025 period. Net written premiums for the six months ended June 30, 2026 decreased by $5,314, or 0.9%, to $588,941 from $594,255 for the comparable 2025 period. The increasedecreases waswere primarily due to the factors that increaseddecreased direct written premiums.

Net Earned Premiums. Net earned premiums for the three months ended MarchJune 31,30, 2026 increased by $18,296,$9,540, or 6.7%,3.4%, to $290,986$291,653 from $272,690$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 increaseincreases waswere primarily due to rate increases earning into top-line results.

Net Investment Income. Net investment income for the three months ended MarchJune 31,30, 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 $2,464,$3,299, or 16.9%,10.9%, to $17,038$33,597 from $14,574$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 4.1%4.0% for the three months endedJune March 31,30, 2026 compared to 3.9%4.2% for the threecomparable 2025 period. Net effective annualized yield on the investment portfolio was 4.1% for the six months ended MarchJune 31,30, 2025.2026 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 March 31, 2026 and December 31, 2025.

Earnings from Partnership Investments. Earnings from partnership investments waswere $3,905$3,329 for the three months ended MarchJune 31,30, 2026 compared to $2,112$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 three-month earnings reflect anyear-over-year increase inreflects higher investment appreciation and distributionthe impact of investmenttiming returnsdifferences comparedbetween valuation changes and the recognition of realized gains. Cash distributions received from partnerships may not correspond to earnings recognized in the priorsame year.period, Timingas gains are typically recognized over time based on changes in fair value. The timing and generationmagnitude of these returns on capital can vary baseddepending on the resultsperformance and transactionstransactional activity of the underlying partnerships.

Net Realized Gains on Investments. Net realized gains on investments waswere $6,631$1,418 for the three months ended MarchJune 31,30, 2026 compared to $4,263$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 isin driven by highernet realized gains fromduring the six-month period reflects the sale of equity securities comparedin toa priorgain years.position during the first quarter of 2026.

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:

(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 includedincludes 936833 securities in an unrealized loss position at MarchJune 31,30, 2026.

The composition of our fixed income security portfolio as defined by Moody’snationally recognized rating agencies was as follows:

As of MarchJune 31,30, 2026, our portfolio of fixed maturity investments was comprised principally of investment-gradeinvestment grade corporate fixed maturity securities, U.S. government and agency securities, and asset-backed securities, and investment-grade collateralized loan obligations.securities. The portion of our non-investment grade portfolio of fixed maturity investments is primarily comprised of variable rate secured and senior bank loans and high yield bonds.

The following table illustrates the gross unrealized losses included in our investment portfolio and the fair value of those securitiessecurities, aggregated by investment category. The table also illustrates the length of time that they have been in a continuous unrealized loss position as of MarchJune 31,30, 2026.

As of MarchJune 31,30, 2026,2026 the Company concluded that $348$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 MarchJune 31,30, 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 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.

For information regarding fair value measurements of our investment portfolio, refer to Item 1-Financial1—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 $2,150$2,252 and $2,095$2,285 for the three months ended MarchJune 31,30, 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 MarchJune 31,30, 2026 decreased by $486,$727, or 7.7%,11.2%, to $5,801$5,758 from $6,287$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 athe decreasedecline in policy counts and changes to our fee assessment policies.counts.

Losses and Loss Adjustment Expenses. LossLosses and loss adjustment expenses incurred for the three months ended MarchJune 31,30, 2026 increased by $57,200,$887, or 30.1%,0.5%, to $247,490$195,119 from $190,290$194,232 for the comparable 2025 period. TheLosses increaseand isloss primarilyadjustment drivenexpenses incurred for the six months ended June 30, 2026 increased by the$58,087, impactor of15.1%, to $442,609 from $384,522 for the Wintercomparable Storms.2025 period.

Our GAAP loss ratio for the three months ended MarchJune 31,30, 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 85.1%76.0% from 69.8%69.3% for the comparable 2025 period. Our GAAP loss ratio excluding loss adjustment expenses for the three months ended MarchJune 31,30, 2026 was 75.7%59.5% compared to 61.4%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 MarchJune 31,30, 2026 was $10,549$10,569 compared to $12,238$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 MarchJune 31,30, 2026 increased by $1,430,$1,087, or 1.8%,1.3%, to $82,281$83,883 from $80,851$82,796 for the comparable 2025 period. TheUnderwriting, increaseoperating reflectsand higherrelated baseexpenses commissionsfor driventhe six months ended June 30, 2026 increased by growth$2,517, inor written1.5%, premiums.to $166,164 from $163,647 for the comparable 2025 period. Our GAAP expense ratio for the three months ended MarchJune 31,30, 2026 decreased to 28.3%28.8% from 29.6%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 $618$814 and $104$442 for the three months ended MarchJune 31,30, 2026 and 2025.2025, 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 19.8%21.1% and 22.4%21.4% for the three months ended MarchJune 31,30, 2026 and 2025, respectively. The effective tax rate was 22.0% and 21.9% for the threesix months ended MarchJune 31,30, 2026 wasand lower2025, than the statutory rate primarily due to the effects of the change in unrealized gains on equity securities.respectively. The effective tax rate forin the three months ended March 31, 20252026 was higher than the statutory rate primarily due to the effects of executivestock-based compensation expense.and permanent differences regarding executive compensation.

Net (Loss) Income. Net lossincome for the three months ended MarchJune 31,30, 2026 was $14,323$34,517 compared to net income of $21,896$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 (Loss) Income. Non-GAAP operating lossincome, as defined aboveabove, was $10,204$29,674 for the three months ended MarchJune 31,30, 2026 compared to non-GAAP operating income of $18,996$21,519 for the comparable 2025 period. The decrease in Non-GAAP operating income was primarily$19,470 for the resultsix ofmonths anended increaseJune in30, losses and loss adjustment expenses2026 compared to the prior period. Non-GAAP operating loss for the quarter ended March 31, 2026 was $0.72 per diluted share, compared to non-GAAP operating income of $1.28 per diluted share$40,515 for the comparable 2025 period.

Net cash used for operating activities was $17,034 during the three months ended March 31, 2026 compared to net cash provided by operating activities ofwas $3,173$21,294 and $35,496 during the threesix months ended March2026 31,and 2025.2025, 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. Net cash used for operating activities during the three months ended March 31, 2026 was the result of the timing of expense payments and Winter Storm payments. Positive operating cash flows are expected in the future to meet our liquidity requirements.

Net cash providedused byfor investing activities was $11,556$323 and $16,129$18,217 during the threesix months ended MarchJune 31,30, 2026 and 2025, respectively. Fixed maturities, equity securities, and other invested assets purchased were $101,182$216,213 for the threesix months ended MarchJune 31,30, 2026 compared to $59,383$159,014 for the comparable prior year period. Proceeds from maturities, redemptions, calls and sales, of securities were $114,580$218,359 during the threesix months ended MarchJune 31,30, 2026 compared to $75,844$141,197 for the comparable prior year period.

Net cash used for financing activities was $13,592$26,954 and $13,568$26,844 during the threesix months ended MarchJune 31,30, 2026 and 2025, respectively. Net cash used for financing activities during the threesix months ended MarchJune 31,30, 2026 consisted of dividend payments to shareholders.

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 threesix months ended MarchJune 31,30, 2026, Safety Insurance paid dividends to Safety of $13,098.$26,897.

On MayAugust 6,5, 2026, our Board of Directors approved and declared a quarterly cash dividend of $0.92 per share which will be paid on JuneSeptember 12,15, 2026 to shareholders of record on JuneSeptember 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 MarchJune 31,30, 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 MarchJune 31,30, 2026. As of MarchJune 31,30, 2026 and December 31, 2025, the Company had purchased 3,478,060 shares of common stock at a cost of $175,240.

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 futurefuture, unless a significant change in the factors described above takes place.

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 $622,192$616,475 to $688,388$685,439 as of MarchJune 31,30, 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 $661,279$657,605 as of MarchJune 31,30, 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 MarchJune 31,30, 2026.

The following table presents our total net reserves and the corresponding case reserves and IBNR reserves for each line of business as of MarchJune 31,30, 2026.

At MarchJune 31,30, 2026, our total IBNR reserves for our private passenger automobile line of business was comprised of ($90,778$85,210) related to estimated ultimate decreases in the case reserves, including anticipated recoveries (i.e. salvage and subrogation), and $43,260$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 41.2%38.8% of our total reserves for CAR assumed commercial automobile business as of MarchJune 31,30, 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 MarchJune 31,30, 2026.

Residual market deficits,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.

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 threesix months ended MarchJune 31,30, 2026, a 1 percentage-point change in the loss and LAE ratio would result in a change in reserves of $2,909.$5,825. Each 1 percentage-point change in the loss and loss expenseLAE ratio would have had a $2,298$4,602 effect on net income, or $0.16$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 threesix months ended MarchJune 31,30, 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.

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 threesix months ended MarchJune 31,30, 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.

The changes we have recorded in our reserves in the past illustrate the uncertainty of estimating reserves. Our prior year reserves decreased by $10,549$21,118 and $12,238$23,473 during the threesix months ended MarchJune 31,30, 2026 and 2025, respectively.