MANAGEMENT’S DISCUSSION AND ANALYSIS | MarketScreener

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

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

                         Executive Summary and Overview

In this discussion, "Safety" refers to Safety Insurance Group, Inc. and "our
Company," "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
Asset Management Corporation ("SAMC"), and Safety Management Corporation, which
is SAMC's holding company.

We are a leading provider of private passenger automobile, commercial
automobile, homeowners and commercial other-than-auto insurance in
Massachusetts. In addition to private passenger automobile insurance (which
represented 53.6% of our direct written premiums in 2021), we offer a portfolio
of other insurance products, including commercial automobile (16.2% of 2021
direct written premiums), homeowners (24.9% of 2021 direct written premiums) and
dwelling fire, umbrella and business owner policies (totaling 5.3% of 2021
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 856 in 1,088 locations throughout
these three states at December 31, 2021. 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 7.9% and
12.0% share, respectively, of the Massachusetts private passenger and commercial
automobile markets in 2021 according to statistics compiled by the Commonwealth
Automobile Reinsurers ("CAR"). We are also the third largest homeowners
insurance carrier in Massachusetts with a 6.8% share of the Massachusetts
homeowners insurance market.

AM Bestwhich rates insurance companies based on factors of concern to policyholders, currently assigns Safety Insurance an “A (Excellent)” rating. Our “A” rating was reaffirmed by AM Best on May 12, 2021.

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Our Insurance Subsidiaries began writing insurance in New Hampshire during 2008
and in Maine in 2016. The table below shows the amount of direct written
premiums written in each state during the three and six months ended June 30,
2022 and 2021.

                             Three Months Ended June 30,            Six Months Ended June 30,
Direct Written Premiums       2022                      2021          2022               2021
Massachusetts           $        204,591              $ 208,082  $      385,682     $      392,334
New Hampshire                      9,034                  8,526          16,674             15,909
Maine                                951                    625           1,713              1,227
Total                   $        214,576              $ 217,233   $     404,069     $      409,470


Recent Trends and Events

Beginning in March 2020the global pandemic associated with the novel coronavirus COVID-19 (“COVID-19”) and related economic conditions caused significant economic effects including temporary closures of many businesses and reduced consumer activity due to shelter-in-place, stay-at-home and other governmental actions.

There are many uncertainties with respect to COVID-19. For further discussion
regarding the potential impacts of COVID-19 and related economic conditions on
the Company, see Part I, Item 1A - Risk Factors of our 2021 Annual Report on
Form 10-K for the year ended December 31, 2021. These risks include legal
challenges or legislative actions that extend business interruption coverage
outside of our policy terms for business owner policies, which require direct
physical loss or damage to property. As discussed in Note 8 - Commitments and
Contingencies, the Company had been named in a lawsuit alleging that the Company
improperly denied coverage to commercial insureds for loss of business income
resulting from the COVID-19 pandemic. Our business owner policies serve eligible
small and medium sized commercial accounts including but not limited to
apartments and condominiums; mercantile establishments; limited cooking
restaurants; offices; and special trade contractors. The majority of these
business owner policies do not contain a specific exclusion for viruses.
However, as viruses do not produce direct physical damage or loss to property,
our position is that no coverage exists for this peril. As a result, the Company
accrued a reserve of $6,500 for legal defense costs at December 31, 2021. While
we will evaluate each claim based on the specific facts and circumstances
involved, our business owner policies do not provide coverage for business
interruption claims unless there is direct physical damage or loss to property.

On April 21, 2022, the Massachusetts Supreme Judicial court ("SJC"), the state's
highest-level court, issued its decision in Verveine Corp. v. Strathmore;
confirming the decision of the original trial court's dismissal of the insureds'
business interruption claims against Strathmore Insurance on the grounds that
the presence of the coronavirus on the insured premises did not constitute
"direct physical loss of or damage to" property.

The SJC noted that while the virus can be physically present on a premise, it
does not have a physical effect on property that can be characterized as loss or
damage. Rather, the phrase "direct physical loss of or damage to" property
requires a "distinct, demonstrable, physical alteration of the property," which
was not present in Verveine. The court specifically rejected the argument that
physical presence could amount to loss or damage. It noted that "evanescent
presence of a harmful airborne substance that will quickly dissipate on its own,
or surface-level contamination that can be removed by simply cleaning, does not
physically alter or affect property." Shortly after SJC's ruling, the claim
against the Company closed and the accrued reserved of $6,500 for legal defense
costs was reversed.

Losses and loss adjustment expenses incurred for the three months ended June 30,
2022 increased by $2,554, or 2.3%, to $112,715 from $110,161 for the comparable
2021 period. Losses and loss adjustment expenses incurred for the six months
ended June 30, 2022 increased by $14,225, or 6.4%, to $235,881 from $221,656 for
the comparable 2021 period. The increase in losses is due to a return of
pre-pandemic frequency in our private passenger automobile line of business and
current market conditions including inflation and supply chain delays.

Non-generally accepted accounting principles ("non-GAAP") operating income, as
defined below, was $28,230 and $43,039 for the three and six months ended
June 30, 2022, respectively, compared to $27,987 and $56,843 for the comparable
2021 periods, respectively. The increase in the three months ended June 30,
2022, was primarily due to

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increases in investment income and earnings from partnerships, as well as the
$6,500 legal defense cost take down described above. The decrease in non-GAAP
operating income for the six months ended June 30, 2022 was primarily the result
of an increase in losses and loss adjustment expenses compared to the prior
period. Non-GAAP operating income for the three and six months ended June 30,
2022 was $1.91 and $2.92 per diluted share, respectively, compared to $1.85 and
$3.78 per diluted share, respectively, for the comparable 2021 period.

The following rate changes have been filed and approved by the insurance regulators of Massachusetts and New Hampshire in 2022 and 2021. Our
Massachusetts private passenger automobile rates include a 13% commission rate for agents.

             Line of Business                 Effective Date       Rate 

Change

Massachusetts Commercial Automobile           May 1, 2022             3.1%
Massachusetts Homeowner                       July 1, 2022            2.6%
Massachusetts Private Passenger Automobile    April 1, 2022           -2.3%

Massachusetts Private Passenger Automobile December 1, 2022 3.5% New Hampshire Commercial Automobile

           September 1, 2022       5.8%
New Hampshire Homeowners                      September 1, 2022       3.5%
New Hampshire Private Passenger Automobile    September 1, 2022       2.8%

Insurance Ratios

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

Our GAAP insurance ratios are outlined in the following table.

                    Three Months Ended June 30,          Six Months Ended June 30,
                      2022                2021            2022               2021
GAAP ratios:
Loss ratio                59.8 %              56.7 %          62.8 %             57.3 %
Expense ratio             32.3                33.5            32.6               33.6
Combined ratio            92.1 %              90.2 %          95.4 %             90.9 %


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.

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The maximum number of shares of common stock between both the 2018 Amended Plan
and 2002 Incentive Plan with respect to which awards may be granted is
3,200,000. No further grants will be allowed under the 2002 Incentive Plan. At
June 30, 2022, there were 444,216 shares available for future grant.

A summary of share based awards granted under the Incentive Plan during the six months ended June 30, 2022 is as follows:

      Type of                                Number of          Fair
       Equity                                  Awards         Value per
      Awarded            Effective Date       Granted         Share (1)          Vesting Terms
RS - Service            February 23, 2022        31,864    $      84.98    3 years, 30%-30%-40%
RS - Performance        February 23, 2022        26,037    $      84.98    3 years, cliff vesting (3)
RS                      February 23, 2022         5,000    $      84.98    No vesting period (2)
RS                      March 24, 2022            2,000    $      89.63   

No vesting period (2) Rs – Performance February 23, 2022 5,791 $84.98 No vesting period (4)

(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.

Board of Directors members must maintain stock ownership equal to at least (2) four times their annual cash retainer. This requirement must be met within

    five years of becoming a director.


    The shares represent performance-based restricted shares award. Vesting of

these shares are dependent upon the attainment of pre-established performance (3) 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.

The shares represent a true-up of previously awarded performance-based (4) restricted share awards. The updated shares were calculated based on the

Attainment of pre-established performance objectives and granted under the

    2002 Incentive Plan.


Reinsurance

We reinsure with other insurance companies a portion of our potential liability
under the policies we have underwritten, thereby protecting us against an
unexpectedly large loss or a catastrophic occurrence that could produce large
losses, primarily in our homeowners line of business. We are selective in
choosing our reinsurers, seeking only those companies that we consider to be
financially stable and adequately capitalized. In an effort to minimize exposure
to the insolvency of a reinsurer, we continually evaluate and review the
financial condition of our reinsurers. Most of our 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 2022 that protects us in the
event of a "135-year storm" (that is, a storm of a severity expected to occur
once in a 135-year period). We use various software products to measure our
exposure to catastrophe losses and the probable maximum loss to us for
catastrophe losses such as hurricanes. The models include estimates for our
share of the catastrophe losses generated in the residual market for property
insurance by the Massachusetts Property Insurance Underwriting Association
("FAIR Plan").

For 2022, we have purchased four layers of excess catastrophe reinsurance providing $590,000 of coverage for aggregate property losses in excess of
$75,000 up to a maximum of $665,000. Our reinsurers’ co-participation is 80.0% of $75,000 for the 1st layer, 80.0% of $250,000 for the 2nd layer, 80.0% of
$265,000 for the 3rd layer.

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

We are a participant in CAR, a state-established body that runs the residual
market reinsurance programs for commercial automobile insurance in Massachusetts
under which premiums, expenses, losses and loss adjustment

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expenses on ceded business are shared by all insurers writing automobile
insurance in Massachusetts. We also participate in the FAIR Plan in which
premiums, expenses, losses and loss adjustment expenses on homeowners business
that cannot be placed in the voluntary market are shared by all insurers writing
homeowners insurance in Massachusetts. The FAIR Plan buys reinsurance to reduce
their exposure to catastrophe losses. On July 1, 2022, the FAIR Plan purchased
$1,740,000 of catastrophe reinsurance for property losses with retention of
$100,000.

At June 30, 2022we also had $102,672 recoverable from CAR comprising of loss adjustment expense reserves, unearned premiums and reinsurance recoverable.

Non-GAAP Measures

Management has included certain non-GAAP financial measures in presenting the
Company's results. Management believes that these non-GAAP measures are useful
to 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, 2022 Compared to Three and Six Months Ended

                                 June 30, 2021

      The following table shows certain of our selected financial results.

                                                                 Three Months Ended June 30,          Six Months Ended June 30,
                                                                   2022                2021              2022             2021
Direct written premiums                                       $       214,576     $      217,233    $      404,069     $   409,470
Net written premiums                                          $       202,724     $      206,826    $      380,776     $   391,044
Net earned premiums                                           $       188,333     $      194,297    $      375,421     $   387,147
Net investment income                                                  11,635              9,774            22,225          21,306
Earnings from partnership investments                                   5,967              2,614             8,799           6,905
Net realized gains on investments                                       3,152              3,406             7,362           6,281
Change in net unrealized gains on equity securities                  (28,885)              8,654          (41,919)          14,861
Credit loss (expense) benefit                                               -                193                 -             374
Finance and other service income                                        3,403              3,937             6,720           7,909
Total revenue                                                         183,605            222,875           378,608         444,783
Losses and loss adjustment expenses                                   112,715            110,161           235,881         221,656
Underwriting, operating and related expenses                           60,872             65,089           122,466         130,113
Interest expense                                                          131                130               260             259
Total expenses                                                        173,718            175,380           358,607         352,028
Income before income taxes                                              9,887             47,495            20,001          92,755
Income tax expense                                                      1,986              9,828             4,262          18,914
Net income                                                    $        

7,901 $37,667 $15,739 $73,841
Earnings per weighted average common share: Basic

                                                         $          

0.54 $ 2.50 $ 1.07 $4.96
Diluted

                                                       $          

0.53 $ 2.49 $ 1.06 $4.93
Cash dividends paid per common share

                          $          

0.90 $ 0.90 $ 1.80 $1.80

Reconciliation of Net Income to Non-GAAP Operating Income:

Net income                                                    $         

7,901 $37,667 $15,739 $73,841
Exclusions from net income: Net realized gains on investments

                                     (3,152)            (3,406)           (7,362)         (6,281)
Change in net unrealized gains on equity securities                    28,885            (8,654)            41,919        (14,861)
Credit loss expense (benefit)                                               -              (193)                 -           (374)
Income tax expense on exclusions from net income                      (5,404)              2,573           (7,257)           4,518
Non-GAAP Operating income                                     $        

28,230 $27,987 $43,039 $56,843

Net income per diluted share                                  $          

0.53 $ 2.49 $ 1.06 $4.93
Exclusions from net income: Net realized gains on investments

                                      (0.21)             (0.23)            (0.50)          (0.42)
Change in net unrealized gains on equity securities                      1.96             (0.57)              2.85          (1.00)
Credit loss expense (benefit)                                               -             (0.01)                 -          (0.03)
Income tax expense on exclusions from net income                       (0.37)               0.17            (0.49)            0.30
Non-GAAP Operating income per diluted share                   $          

1.91 $ 1.85 $ 2.92 $3.78

Direct Written Premiums. Direct written premiums for the three months ended
June 30, 2022 decreased by $2,657, or 1.2%, to $214,576 from $217,233 for the
comparable 2021 period. Direct written premiums for the six months ended
June 30, 2022 decreased by $5,401 or 1.3%, to $404,069 from $409,470 for the
comparable 2021 period. The decrease is primarily in our private passenger
automobile line of business and is a result of a decrease in policy counts.

Net Written Premiums. Net written premiums for the three months ended June 30,
2022 decreased by $4,102, or 2.0%, to $202,724 from $206,826 for the comparable
2021 period. Net written premiums for the six months ended June 30, 2022
decreased by $10,268, or 2.6%, to $380,776 from $391,044 for the comparable 2021
period. The changes in both periods are a result of the changes in direct
written premiums as described above.

Net Earned Premiums.  Net earned premiums for the three months ended June 30,
2022 decreased by $5,964, or 3.1%, to $188,333 from $194,297 for the comparable
2021 period. Net earned premiums for the six months ended

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June 30, 2022 decreased by $11,726, or 3.0%, to $375,421 from $387,147 for the
comparable 2021 period. The changes in both periods are a result of the changes
in direct written premiums as described above.

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,
                             2022                2021              2022               2021
Written Premiums
Direct                   $      214,576      $      217,233    $     404,069      $     409,470
Assumed                           7,967               8,429           14,708             15,760
Ceded                          (19,819)            (18,836)         (38,001)           (34,186)
Net written premiums     $      202,724      $      206,826    $     380,776      $     391,044

Earned Premiums
Direct                   $      198,953      $      202,964    $     395,472      $     404,019
Assumed                           7,584               7,970           15,338             15,997
Ceded                          (18,204)            (16,637)         (35,389)           (32,869)
Net earned premiums      $      188,333      $      194,297    $     375,421      $     387,147


Net Investment Income.  Net investment income for the three months ended
June 30, 2022 increased by $1,861, or 19.0%, to $11,635 from $9,774 for the
comparable 2021 period. Net investment income for the six months ended June 30,
2022 increased by $919, or 4.3%, to $22,225 from $21,306 for the comparable 2021
period. The increase is a result of an increase in the average invested asset
balance and an increase in floating interest rates on our fixed maturities high
yield portfolio as compared to the prior year. Net effective annualized yield on
the investment portfolio was 3.0% for the three months ended June 30, 2022
compared to 2.9% for the comparable 2021 period. Net effective annualized yield
on the investment portfolio was 3.2% for the six months ended June 30, 2022
compared to 2.7% for the six months ended June 30, 2021. The investment
portfolio's duration on fixed maturities was 3.7 years at June 30, 2022 compared
to 3.6 years at December 31, 2021.

Earnings from Partnership Investments. Earnings from partnership investments
were $5,967 for the three months ended June 30, 2022 compared to $2,614 for the
comparable 2021 period. Earnings from partnership investments were $8,799 for
the six months ended June 30, 2022 compared to $6,905 for the comparable 2021
period. The 2022 earnings reflect an increase in investment appreciation and
timing of cash proceeds received 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 was $3,152
for the three months ended June 30, 2022 compared to $3,406 for the comparable
2021 period. Net realized gains on investments was $7,362 for the six months
ended June 30, 2022 compared to $6,281 for the comparable 2021 period. The
increase in the six months ended June 30, 2022 compared to the six months ended
June 30, 2021 is the result of realized gains on the sale of equity securities
compared to the prior year.

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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, equity securities, including interests in mutual funds, other
invested assets, and short-term investments were as follows for the periods
indicated:

                                                          As of June 30, 2022

                                Cost or       Allowance for          Gross Unrealized          Estimated
                               Amortized     Expected Credit                                     Fair
                                 Cost             Losses            Gains      Losses (3)        Value
U.S. Treasury securities      $     1,827    $              -    $         -   $     (106)    $     1,721
Obligations of states and
political subdivisions             77,004                   -            729       (2,764)         74,969
Residential
mortgage-backed securities
(1)                               240,120                   -            431      (17,171)        223,380
Commercial mortgage-backed
securities                        158,065                   -              -      (10,328)        147,737
Other asset-backed
securities                         74,647                   -              8       (4,127)         70,528
Corporate and other
securities                        599,704               (691)            521      (45,628)        553,906
Subtotal, fixed maturity
securities                      1,151,367               (691)          1,689      (80,124)      1,072,241
Short term securities                   5                   -              -             -              5
Equity securities (2)             223,519                   -         32,651      (21,473)        234,697
Other invested assets             103,634                   -              -             -        103,634
Totals                        $ 1,478,525    $          (691)    $    34,340   $ (101,597)    $ 1,410,577


(1)Residential mortgage-backed securities consisted 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 included common stock, preferred stock, mutual funds and
interests in mutual funds held to fund the Company's executive

deferred compensation plan.

(3) Our investment portfolio included 1,188 securities in an unrealized loss position June 30, 2022.

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

                                                              As of June 30, 2022
                                                             Estimated
                                                             Fair Value     Percent
U.S. Treasury securities and obligations of U.S.
Government agencies                                        $    223,381        20.8 %
Aaa/Aa                                                          246,865        23.0
A                                                               237,448        22.1
Baa                                                             199,420        18.6
Ba                                                               53,630         5.0
B                                                                88,477         8.3
Caa/Ca                                                            2,919         0.3
Not rated                                                        20,101         1.9
Total                                                      $  1,072,241       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, 2022, our portfolio of fixed maturity investments was comprised
principally of investment grade corporate fixed maturity securities, U.S.
government and agency securities, and asset-backed securities. The portion of
our non-investment grade portfolio of fixed maturity investments is primarily
comprised of variable rate secured and senior bank loans and high yield bonds.

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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, 2022.

                                                                      As of June 30, 2022
                                       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           $     1,720    $        106    $         -    $          -    $     1,720    $        106
Obligations of states and
political subdivisions                  37,017           2,541            827             223         37,844           2,764
Residential mortgage-backed
securities                             189,293          15,210         13,025           1,961        202,318          17,171
Commercial mortgage-backed
securities                             142,502           9,319          5,040           1,009        147,542          10,328
Other asset-backed securities           69,613           4,111            288              16         69,901           4,127
Corporate and other securities         471,508          40,899         33,513           4,729        505,021          45,628
Subtotal, fixed maturity
securities                             911,653          72,186         52,693           7,938        964,346          80,124
Equity securities                      121,069          20,189         22,637           1,284        143,706          21,473
Total temporarily impaired
securities                         $ 1,032,722    $     92,375    $   

77,106 $9,222 $1,109,828 $101,597


The Company's analysis of its fixed maturity portfolio at June 30, 2022
concluded that $691 of unrealized losses were due to credit factors and were
recorded as an allowance for expected credit losses at June 30, 2022. 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, 2022 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.

Specific qualitative analysis was also performed for securities appearing on our
"Watch List."  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.



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, 2022 decreased by $534, or 13.6%, to $3,403 from
$3,937 for the comparable 2021 period. Finance and other service income for the
six months ended June 30, 2022 decreased by $1,189, or 15.0%, to $6,720 from
$7,909 for the comparable 2021 period. The decrease in both periods is primarily
driven by a change in our late fee assessment policy.

Losses and Loss Adjustment Expenses.  Losses and loss adjustment expenses
incurred for the three months ended June 30, 2022 increased by $2,554, or 2.3%,
to $112,715 from $110,161 for the comparable 2021 period. Losses and loss
adjustment expenses incurred for the six months ended June 30, 2022 increased by
$14,225, or 6.4%, to $235,881 from $221,656 for the comparable 2021 period. The
increase in losses is due to a return of pre-pandemic frequency in our private
passenger automobile line of business and current market conditions including
inflation and supply chain delays.

Our GAAP loss ratio for the three months ended June 30, 2022 increased to 59.8%
from 56.7% for the comparable 2021 period.  Our GAAP loss ratio for the six
months ended June 30, 2022 increased to 62.8% from 57.3% for the comparable 2021
period. Our GAAP loss ratio excluding loss adjustment expenses for the three
months ended June 30, 2022 was 53.5% compared to 48.0% for the comparable 2021
period. Our GAAP loss ratio excluding loss adjustment expenses for the six
months ended June 30, 2022 was 54.4% compared to 46.4% for the comparable 2021
period. Total prior year favorable development included in the pre-tax results
for the three months ended June 30, 2022 was $16,861 compared to $13,349 for the
comparable 2021 period. Total prior year favorable development included in

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the pre-tax results for the six months ended June 30, 2022 was $29,273 compared
to $25,808 for the comparable 2021 period. The increase is the prior year
favorable development in 2022 is related to the reversal of the $6,500 legal
expense reserve noted in the Recent Trends and Events section.

Underwriting, Operating and Related Expenses.  Underwriting, operating and
related expenses for the three months ended June 30, 2022 decreased by $4,217,
or 6.5%, to $60,872 from $65,089 for the comparable 2021 period. Underwriting,
operating and related expenses for the six months ended June 30, 2022 decreased
by $7,647, or 5.9%, to $122,466 from $130,113 for the comparable 2021 period.
The decrease in the three months ending June 30, 2022 is driven by a decrease in
contingent commission expenses. The decrease in the six months ending June 30,
2022 is also a result of a decrease in contingent commission expenses offset by
expenses incurred related to an activist investor during the first quarter of
2022. Our GAAP expense ratio for the three months ended June 30, 2022 decreased
to 32.3% from 33.5% for the comparable 2021 period. Our GAAP expense ratio for
the six months ended June 30, 2022 decreased to 32.6% from 33.6% for the
comparable 2021 period.

Interest Expense.  Interest expense was $131 and $130 for the three months ended
June 30, 2022 and 2021. Interest expense was $260 for the six months ended
June 30, 2022 compared to $259 for the comparable 2021 period. The credit
facility commitment fee included in interest expense was $37 for the six months
ended June 30, 2022 and 2021.

Income Tax Expense.  Our effective tax rate was 20.1% and 20.7% for the three
months ended June 30, 2022 and 2021, respectively. Our effective tax rate was
21.3% and 20.4% for the six months ended June 30, 2022 and 2021. The effective
tax rate for the six months June 30, 2022 was higher than the statutory rate
primary due to the effects of the change in unrealized gains on equity
securities and the impact of stock-based compensation.

Net Income.   Net income for the three months ended June 30, 2022 was $7,901
compared to net income of $37,667 for the comparable 2021 period. Net income for
the six months ended June 30, 2022 was $15,739 compared to net income of $73,841
for the comparable 2021 period.

Non-GAAP Operating Income. Non-GAAP operating income, as defined above, was
$28,230 for the three months ended June 30, 2022 compared to $27,987 for the
comparable 2021 period. Non-GAAP operating income was $43,039 for the six months
ended June 30, 2022 compared to $56,843 for the comparable 2021 period.

                        Liquidity and Capital Resources

As discussed in the Regulatory Matters section below, 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 used for operating activities was $275 and net cash provided by
operating activities was $62,590 during the six months ended 2022 and 2021,
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.

Net cash provided by investing activities was $17,117 and net cash used for
investing activities was $6,715 during the six months ended June 30, 2022 and
2021, respectively. Fixed maturities, equity securities, and other invested
assets purchased were $151,900 for the six months ended June 30, 2022 compared
to $192,441 for the comparable prior year period. Proceeds from maturities,
redemptions, calls and sales, of securities were $169,713 during the six months
ended June 30, 2022 compared to $191,151 for the comparable prior year period.

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Net cash used for financing activities was $41,362 and $27,280 during the six
months ended June 30, 2022 and 2021, respectively. Net cash used for financing
activities during the six months ended June 30, 2022 consisted of dividend
payments to shareholders and the acquisition of treasury stock.

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 ("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 year-end December 31, 2021, the statutory surplus of Safety
Insurance was $826,979, and its statutory net income for 2021 was $97,169. As a
result, a maximum of $97,169 is available in 2022 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 $729,810
at December 31, 2021. During the six months ended June 30, 2022, Safety
Insurance paid dividends to Safety of $51,790.

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

Since the initial public offering of its common stock in November 2002, the Company has paid regular quarterly dividends to shareholders of its common stock. Quarterly dividends paid during 2022 were as follows:

                                                                              Total
   Declaration          Record           Payment        Dividend per     Dividends Paid
      Date               Date              Date         Common Share       and Accrued
February 15, 2022    March 5, 2022    March 15, 2022    $        0.90    $        13,246
May 6, 2022          June 1, 2022     June 15, 2022     $        0.90    $        13,281


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On August 3, 2022, our Board approved and declared a quarterly cash dividend of
$0.90 per share which will be paid on September 15, 2022 to shareholders of
record on September 1, 2022. We plan to continue to declare and pay quarterly
cash dividends in 2022, 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,
2022, 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. As of
June 30, 2022, the Company had purchased 3,141,477 shares of common stock at a
cost of $150,000. As of December 31, 2021, the Company had purchased 2,970,573
shares of common stock at a cost of $135,397.

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 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, 2021, the Insurance
Subsidiaries had total capital of $826,979, 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 $200,196 at December 31, 2021.

Off-Balance Sheet Arrangements

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

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                   Critical Accounting Policies and Estimates

Loss and Loss Adjustment Expense Reserves

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

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

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

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

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

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


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Bornhuetter-Ferguson Indications: This method projects ultimate loss estimates

based upon extrapolations of an expected amount of IBNR, which is added to

? current incurred losses or paid losses. This method tends to be used on small,

immature, or volatile lines of business, such as our BOP and umbrella lines of

business.

Bodily Injury Code Indications: This method projects ultimate loss estimates

for our private passenger and commercial automobile bodily injury coverage

Based upon extrapolations of the historical number of accidents and the historical

number of bodily injury claims per accident. Projected ultimate bodily injury

? claims are then segregated into expected claims by type of injury (eg 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
$423,106 to $488,317 as of June 30, 2022. 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 $459,607 as of
June 30, 2022.

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, 2022.

                                         As of June 30, 2022
Line of Business                   Low       Recorded       High
Private passenger automobile    $ 167,974    $ 181,469    $ 192,916
Commercial automobile              99,484      107,046      111,066
Homeowners                         84,425       90,884       94,275
All other                          71,223       80,208       90,060
Total                           $ 423,106    $ 459,607    $ 488,317

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, 2022.

                                                  As of June 30, 2022
Line of Business                           Case          IBNR         Total
Private passenger automobile             $ 226,365    $ (44,904)    $ 

181,461

CAR assumed private passenger auto               1             7            8
Commercial automobile                       66,969         8,754       

75,723

CAR assumed commercial automobile           17,943        13,380       

31,323

Homeowners                                  84,519       (3,603)       

80,916

FAIR Plan assumed homeowners                 4,114         5,854        

9,968

All other                                   46,670        33,538       

80,208

Total net reserves for losses and LAE $446,581 $13,026 $459,607


At June 30, 2022, our total IBNR reserves for our private passenger automobile
line of business was comprised of ($65,127) related to estimated ultimate
decreases in the case reserves, including anticipated recoveries (i.e. salvage
and subrogation), and $20,223 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 42.7% of our total reserves for CAR assumed commercial automobile
business as of June 30, 2022, due to the reporting delays in the information we
receive from CAR, as described further in the section on Residual Market Loss
and Loss Adjustment Expense Reserves.  Our IBNR reserves for FAIR Plan assumed
homeowners are 58.7% of our total reserves for FAIR Plan assumed homeowners at
June 30, 2022, due to similar reporting delays in the information we receive
from FAIR Plan.

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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, 2022.

                                                     As of June 30, 2022
Line of Business                              Retained      Assumed       

Net

Private passenger automobile                $  181,461
CAR assumed private passenger automobile                  $       8
Net private passenger automobile                                       $ 

181,469

Commercial automobile                           75,723
CAR assumed commercial automobile                            31,323
Net commercial automobile                                                

107,046

Homeowners                                      80,916
FAIR Plan assumed homeowners                                  9,968
Net homeowners                                                            

90,884

All other                                       80,208            -       

80,208

Total net reserves for losses and LAE $418,308 $41,299 $459,607

Residual Market Loss and Loss Adjustment Expense Reserves

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

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

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

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

Sensitivity Analysis

Establishment of appropriate reserves is an inherently uncertain process. There
can be no certainty that currently established reserves based on our key
assumptions regarding frequency and severity in our lines of business, or our
assumptions regarding our share of the CAR loss will prove adequate in light of
subsequent actual experience. To the extent that reserves are inadequate and are
strengthened, the amount of such increase is treated as a charge to earnings in
the period that the deficiency is recognized. To the extent that reserves are
redundant and are released, the amount of the release is a credit to earnings in
the period the redundancy is recognized.  For the six months ended June 30,
2022, a 1 percentage-point change in the loss and LAE ratio would result in a
change in reserves of $3,754. Each 1 percentage-point change in the loss and LAE
ratio would have had a $2,966 effect on net income, or $0.20 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, 2022. In evaluating
the information in the table, it should be

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Table of Contents

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.

                                              -1 Percent           No           +1 Percent
                                              Change in        Change in        Change in
                                              Frequency        Frequency        Frequency
Private passenger automobile retained
loss and LAE reserves
-1 Percent Change in Severity
Estimated decrease in reserves               $    (3,629)    $      (1,815)    $          -
Estimated increase in net income                    2,867             1,434               -
No Change in Severity
Estimated (decrease) increase in reserves         (1,815)                 -

1,815

Estimated increase (decrease) in net
income                                              1,434                 -

(1,434)

+1 Percent Change in Severity
Estimated increase in reserves                          -             1,815

3,629

Estimated decrease in net income                        -           (1,434)

(2,867)

Commercial automobile retained loss and
LAE reserves
-1 Percent Change in Severity
Estimated decrease in reserves                    (1,514)             (757)               -
Estimated increase in net income                    1,196               598               -
No Change in Severity
Estimated (decrease) increase in reserves           (757)                 -             757
Estimated increase (decrease) in net
income                                                598                 -

(598)

+1 Percent Change in Severity
Estimated increase in reserves                          -               757

1,514

Estimated decrease in net income                        -             (598)

(1,196)

Homeowners retained loss and LAE reserves
-1 Percent Change in Severity
Estimated decrease in reserves                    (1,618)             (809)               -
Estimated increase in net income                    1,278               639               -
No Change in Severity
Estimated (decrease) increase in reserves           (809)                 -             809
Estimated increase (decrease) in net
income                                                639                 -

(639)

+1 Percent Change in Severity
Estimated increase in reserves                          -               809

1,618

Estimated decrease in net income                        -             (639)

(1,278)

All other retained loss and LAE reserves
-1 Percent Change in Severity
Estimated decrease in reserves                    (1,604)             (802)               -
Estimated increase in net income                    1,267               634               -
No Change in Severity
Estimated (decrease) increase in reserves           (802)                 -             802
Estimated increase (decrease) in net
income                                                634                 -

(634)

+1 Percent Change in Severity
Estimated increase in reserves                          -               802

1,604

Estimated decrease in net income                        -             (634)

(1,267)


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

The following sensitivity table presents information of the effect each 1 percentage-point change in our assumptions on our share of reserves for CAR and other residual markets could have on our assumed loss and LAE

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Table of Contents

reserves and net income for the six months ended June 30, 2022. 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.

                                                -1 Percent      +1 Percent
                                                Change in       Change in
                                                Estimation      Estimation

CAR assumed commercial automobile Estimated (decrease) increase in reserves $ (313) $313
Estimated increase (decrease) in net income

             247           (247)
FAIR Plan assumed homeowners
Estimated (decrease) increase in reserves             (100)             100
Estimated increase (decrease) in net income              79            (79)

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 $29,273
and $25,808 during the six months ended June 30, 2022 and 2021, 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, 2022 and 2021.
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           2022             2021
2012 & prior        $        (86)      $    (838)
2013                        (345)           (275)
2014                        (451)           (535)
2015                      (1,301)         (1,066)
2016                      (1,329)           (515)
2017                      (1,832)         (2,478)
2018                      (3,676)         (5,262)
2019                      (5,889)         (8,651)
2020                      (6,453)         (6,188)
2021                      (7,911)               -
All prior years     $    (29,273)      $ (25,808)

The decreases in prior years' reserves during the six months ended June 30, 2022
and 2021 resulted from re-estimations of prior year ultimate loss and LAE
liabilities. The 2022 decrease is composed of reductions of $7,157 in our
retained private passenger automobile reserves, $4,385 in our retained
commercial automobile reserves, $6,558 in our retained homeowners reserves and
$11,173 in our retained other lines reserves. The 2021 decrease is primarily
composed of reductions of $8,206 in our retained private passenger automobile
reserves, $2,110 in our retained commercial automobile reserves, $7,670 in our
retained homeowners reserves and $4,699 in our retained other lines reserves.

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The following table presents information by line of business for prior year development of our net reserves for losses June 30, 2022.

                               Private Passenger      Commercial
Accident Year                     Automobile          Automobile     Homeowners      All Other        Total
2012 & prior                    $            (28)     $       (6)      $    (52)     $        -     $      (86)
2013                                         (13)             (3)              4          (333)           (345)
2014                                          (5)               -           (95)          (351)           (451)
2015                                        (135)           (365)          (244)          (557)         (1,301)
2016                                        (110)            (26)          (361)          (832)         (1,329)
2017                                        (405)            (77)          (394)          (956)         (1,832)
2018                                      (1,168)           (416)        (1,333)          (759)         (3,676)
2019                                      (2,699)           (981)        (1,894)          (315)         (5,889)
2020                                      (2,759)         (1,515)        (1,848)          (331)         (6,453)
2021                                          165           (996)          (341)        (6,739)         (7,911)
All prior years                 $         (7,157)     $   (4,385)      $ (6,558)     $ (11,173)     $  (29,273)


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 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

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

For fixed maturities that the Company does not intend to sell or for which it is
more likely than not that the Company would not be required to sell before an
anticipated recovery in value, the Company separates the 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: Net Impairment Losses on Investments.”

                           Forward-Looking Statements

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

? Projections of revenues, income, earnings per share, capital expenditures,

dividends, capital structure or other financial items;

? Descriptions of plans or objectives of management for future operations,

products or services;

? Forecasts of future economic performance, liquidity, need for funding and

income;

? Legal and regulatory commentary

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

? Future performance of credit markets.

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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 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 I, Item 1A – Risk Factors of our 2021 Annual Report on

Form 10-K for the year ended December 31, 2021.

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 publicly update or revise any forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.

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