Annual Report 2022

A U T O H O M E B U S I N E S S

2022

ANNUAL

REPORT

OUR

SHAREHOLDERS

We help you manage life's storms

The key	The key to our
to our success:	customers' success:
SERVICE.	SAFETY.

Safety Insurance was founded in 1979 with a belief that we would succeed as a company if customers were given the best possible service. As we've grown and expanded our product line to include a full portfolio of property and casualty insurance products, staying committed to that belief has meant even more. At Safety, we do everything possible to make it easy for our agents and policyholders to do business with us.

Today, Safety is the fifth largest private passenger automobile carrier, the second largest commercial automobile carrier, and the third largest homeowners carrier in Massachusetts. We support our network of independent agents with state-of-the-art tools that make the ease and convenience of doing business with Safety second to none.

Together with our agents, Safety Insurance remains a premier provider of property and casualty insurance in Massachusetts, New Hampshire, and Maine. We'll continue this tradition into the future.

Dear Fellow Stockholders:

Safety Insurance had another financially successful year with a combined

ratio of 97.2% and GAAP earnings per diluted share of $3.15. Our non-GAAP operating earnings per diluted share, which exclude the impact of changes in unrealized gains/losses on equity investments, realized gains/ losses on investments, and other-than-temporary impairments, was $5.05. While industry challenges around inflation continue to exist, we again achieved operating profitability and have successfully maintained our strong financial position. Our commitment to strong underwriting results and enhanced investment returns, remains unchanged. As always, we focus on pricing our products appropriately for the risks we are insuring while generating the capital to grow our business in new and creative ways.

To achieve these goals, our long-standing strategy is to maintain and develop strong independent agent relationships. In contrast to some of our competitors, Safety distributes its products exclusively through independent agents. We continue to work with our extensive network of agents throughout Massachusetts, New Hampshire and Maine. We support them with a full suite of insurance products and information technology services, which enables them to better serve their customers and more easily transact business with us.

Cash Dividends Paid

Per Common Share

Our strategy of providing agents with value and unparalleled service has enabled Safety to establish strong relationships with agency partners and to capture a larger share of the total business written by each agent. We position ourselves as the preferred insurance carrier for those agents and are ranked first or second in over 70% of their agencies based on direct written premium. We have translated our competitive advantage and extensive knowledge of the market to become the second largest commercial automobile carrier, the fifth largest private passenger automobile carrier and the third largest homeowners carrier

(Dollars)

$3.20 $3.40

$3.60 $3.60 $3.60

in Massachusetts.

Safety is proud of our history as an independent agency company and remains committed to the agency channel. In December 2022, Safety acquired, through a wholly-owned subsidiary, the assets and operations of Northeast Insurance Agency, Inc ("Northeast/Metrowest"). Since 1989,

2018 2019 2020 2021 2022

Total Revenues

(Excluding Changes in Unrealized Gains on Equity Investments)

(Dollars in Millions)

$852.80 $856.30 $835.70 $868.80 $842.00

2018 2019 2020 2021 2022

Northeast/Metrowest has provided personal and commercial insurance to properly protect its customers by determining the best coverage to suit their unique needs. Over that time, Northeast/Metrowest has grown to include over $40 million in policy premiums and continues to expand its offerings to its customers.

This acquisition is an exciting opportunity to strengthen our standing within the independent agency channel while positioning us for future prosperity. Over 30% of our current policies are handled in our Service Center and there will be numerous synergies that can be recognized by both Safety and Northeast/Metrowest, that will enhance our policyholder engagement.

Safety Insurance 2022 Annual Report 1

We again achieved operating profitability and have successfully maintained our strong financial position.

Our insurance agency efforts are focused on providing our independent agency partners and our shared customers easy to use technology tools that make doing business with Safety, second to none. We continue to focus on customer engagement by giving our policyholders a variety of ways to interact with us in the underwriting, claims, and billing areas.

We also continue to invest in digital technology enhancements for our core systems that are aimed at providing our independent agents and consumers with useful tools to enhance the user experience. To assist in these efforts, we have an in-house Innovation Lab whose purpose is to foster a culture of innovative thinking, monitor the InsurTech landscape and provide Safety and our independent agents with the

tools and processes necessary to continuously improve the customer experience. During 2022, the Innovation Lab did substantial research, performed multiple proof of concepts, initiated pilot projects, participated in industry sponsored InsureTech events and presented fully functional technologies to the business for their use. Specific 2022 projects completed by the Innovation Lab included partnering with Safety's Commercial Underwriting department to introduce a no code low code product into our technology toolset, which was used to develop an underwriting workbench. A proof of concept was also developed in partnership with our Service Center to explore the development of a Customer System of Record application. Finally, the Innovation Lab also partnered with the Claims department to select an outbound electronic claims payment system which we will look to implement in 2023.

Our investment objective continues to focus on maximizing total
returns while investing conservatively. Net effective annual yield on
our investment portfolio was 3.2% for the year ended December 31,
2022. Our duration on fixed maturities was 3.8 years at December 31,
2022. We additionally generated $12.5 million on our partnership
investments and $9.2 million in realized gains in 2022. We continue

to believe that our current portfolio position and strong underlying
operating cash flow provides sufficient liquidity to meet our needs.	Total Shareholders' Equity
	(Excluding Unrealized Gains and Losses)
Our insurance subsidiaries ''A'' (Excellent) rating was reaffirmed by	(Dollars in Millions)

A.M. Best on May 25, 2022. In reaffirming the rating, A.M. Best				$902.60	$892.50
recognized our solid risk-adjusted capitalization, historically strong			$831.20
	$780.20
$729.30
operating income, favorable loss reserve development, and market

position as a leading property and casualty insurance writer in the
New England region. A.M. Best also noted our low investment leverage	2018	2019	2020	2021	2022
and disciplined underwriting approach as important strengths.

We were also named to the 2022 Ward's 50 group of top performing
property and casualty insurance companies. Ward Group analyzed	Non-GAAP Operating Income
the financial performance of nearly 3,000 property-casualty
(Dollars in Millions)
insurance companies based in the United States and identified the
top performances based on objective data and subjective quality			$130.00
measures. Each company must pass primary safety and consistency
			$105.90
tests and are measured and scored along five-year average returns	$93.70

	$81.00			$74.40
on equity, assets, total revenue, growth in revenue, growth in


surplus, and combined ratio.	2018	2019	2020	2021	2022

Safety's book value per share decreased to $54.88 at December 31,
2022 from a record high of $62.47 at December 31, 2021 resulting

2 Safety Insurance 2022 Annual Report

Safety Insurance is

committed to developing

environmentally and

socially-conscious

from the impact of interest rate changes on the value of our fixed maturity portfolio of $105.1 million. Additional decreases in book value resulted from capital allocation activities, specifically dividends paid, and shares repurchased during the year ended December 31, 2022. Safety paid $3.60 per share in dividends to investors during the year ended December 31, 2021 and 2022, respectively. Our dividend yield ranks in the top three of our Performance Peer Group and remains a priority of the Board of Directors and management team.

solutions.	In April of 2022, Safety Insurance issued its inaugural report on our approach to
Environmental, Social, and Governance (ESG) matters. We believe that Safety

	Insurance has a responsibility to both its stakeholders and the environment in
which it operates, and that the effective management of ESG issues will help drive the continued success of

the business. To that end, Safety Insurance is committed to developing environmentally and socially-conscious solutions for our employees, our community, our investors and our independent agency partners and policyholders. We continue to make indelible impacts in our communities in various ways, from the Parent's Supervised Driving Program Guide and the In Control Advanced Driver Training, which encourage new and young drivers to be responsible and drive safe.

Our employees give both their time and their financial resources to charities of all types, and the company promotes corporate citizenship through charitable donations and company-sponsored volunteer activities.

Safety is committed to making a positive impact on the communities where our employees live and work through our matching gift program, corporate giving and employee volunteerism. The Safety Insurance Charitable Foundation financially supports a wide array of charities in areas such as community service, education, job training, homelessness, arts/culture, food banks, youth programs, healthcare, medical research and disaster relief.

Total Assets				For the environment, we continue to efficiently operate our physical
(Dollars in Billions)
					footprint in the heart of Boston, Massachusetts. We are committed to
		$2.05	$2.12		investigating additional ways to measure and reduce our overall carbon
	$2.02	$1.97	footprint in line with industry practices. Most importantly, ESG risk
$1.86

					management is incorporated into our formal Enterprise Risk Management
					Program. Through this program, our senior leadership team oversees the
2018	2019	2020	2021	2022	management and risk mitigation process and works with the Board of
Directors to evolve our ESG strategy and monitor ESG initiatives.

					With the support of an experienced, knowledgeable and dedicated
					senior management team, we continue to achieve operational and
					financial success. The ongoing commitment of our employees, allows
					us to continually provide the best service possible to our independent
					agent partners and policyholders. This has resulted in a history of strong
					returns and enduring value for our stockholders. We appreciate your
					long-term participation as a stockholder of Safety Insurance Group.
					Sincerely,
					George M. Murphy
					President and Chief Executive Officer
					Safety Insurance 2022 Annual Report 3

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Disclaimer

Safety Insurance Group Inc. published this content on 05 April 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 05 April 2023 18:52:13 UTC.

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