2019 ANNUAL REPORT 2019 ANNUAL REPORT OUR SHAREHOLDERS TO HOME AUTO BUSINESS SAFETY INSURANCE AUTO • HOME • BUSINESS 2019 ANNUAL REPORT AND FORM 10-K 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 The key to our to that belief has meant even more. At Safety, we do success: everything possible to make it easy for our agents and SERVICE. policyholders to do business with us. The key to Today, Safety is the third largest private passenger our customers’ automobile carrier, the largest commercial automobile success: carrier, and the third largest homeowners carrier in SAFETY. 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 Shareholders: As I write this letter, Safety Insurance Group recognizes the current COVID-19 pandemic as a dynamic situation. We have taken actions that address the health and well-being of our employees while still serving the needs of our clients. We quickly activated our robust Business Continuity Plan which ensured that our core business operations continued to provide the high levels of service that our policyholders and agents have come to expect from Safety. We are well-versed in managing operations in challenging times and we are confident that we will navigate this unprecedented situation together with minimal disruptions. Looking back at 2019, Safety Insurance Group had another successful year with realized net income of $99.6 million or $6.46 of earnings per share. We again achieved operating profitability and have successfully maintained our strong financial position with total shareholders’ equity increasing to $808.4 million as of December 31, 2019 compared to $718.6 million as of December 31, 2018. Our operating earnings per share, which exclude the impact of changes in unrealized gains on equity investments, realized gains on investments, and other- than-temporary impairments, was $5.25 in 2019 compared to $6.12 in 2018. The closing price of our stock on December 31, 2019 was $92.53 per share, resulting in a 2019 total dividend adjusted shareholder return of 17.2% for the year. Over the past three years, our total dividend adjusted shareholder return is 1 Cash Dividends Paid 40.8%.Total OurRevenues dividends paid to shareholders during the yearCash were Flows $3.40 from per Operations share Net Income Total Assets Per Common Share (Dollars in Millions) (Dollars in Millions) (Dollars in Millions) (Dollars in Billions) (Dollars) representing a 6% increase from the previous year. $852.80 $856.30 $3.40 $819.82 $839.10 $127.70 $99.60 $2.02 $3.20 $797.95 $1.86 $3.00 $112.50 $83.20 $1.76 $1.81 $2.80 $2.80 $1.70 Our total revenues for 2019, excluding changes in unrealized gains$98.82 on equity $64.59 $62.39 investments were $856.3 million, a $3.5 million increase over our 2018$82.04 total revenues of $852.8 million. This growth was principally the result of increases in net earned and net written premiums, primarily in our commercial automobile $22.89 and homeowners business lines. Our loss and expense ratios were 64.6% and $(13.85) 31.0% in 2019 compared to 62.1% and 31.6% in 2018. The overall combined ratio 2015 2016 2017 2018 2019 was2015 95.6%2016 in 20192017 compared2018 to 93.7%2019 in 2018. 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 Cash Dividends Paid Total Revenues1 Cash Flows from Operations Net Income Total Assets Per Common Share (Dollars in Millions) (Dollars in Millions) (Dollars in Millions) (Dollars in Billions) (Dollars) $852.80 $856.30 $3.40 $819.82 $839.10 $127.70 $99.60 $2.02 $3.20 $797.95 $1.86 $3.00 $112.50 $83.20 $1.76 $1.81 $2.80 $2.80 $1.70 $98.82 $64.59 $62.39 $82.04 $22.89 $(13.85) 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 Safety Insurance Annual Report 2019 1) 2018 and 2019 exclude the change in unrealized 1 gains/losses on equity investments To achieve our goal of increasing shareholders’ value, 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 provide them with a full suite of insurance products and information technology services, which enables them to better serve their customers and more easily conduct business with us. Our strategy of Our strategy of providing agents with unparalleled service and value has enabled providing agents with Safety to establish strong relationships with agency partners and to capture a unparalleled service 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 and value has enabled over 70% of their agencies based on direct written premium. We have translated Safety to establish our competitive advantage and extensive knowledge of the market to become strong relations and the largest commercial automobile carrier, the third largest private passenger automobile carrier and the third largest homeowners carrier in Massachusetts. capture a larger share of the total business. In the rapidly changing area of insurance technology, we are focused on systems modernization. Our new billing system became fully operational in 2020 and the first phase of our modernized claims system will come on-line later this year with a target to be fully completed by the end of 2021. We also continue to innovate through the use of telematics, robotic processing automation and developments in business intelligence. We recently established a dedicated internal department of individuals 1 Cash Dividends Paid Total Revenues Cash Flows from Operations whoNet Incomeuse these tools to enhance the customer and independentTotal Assets agent experience. Per Common Share (Dollars in Millions) (Dollars in Millions) (Dollars in Millions) (Dollars in Billions) (Dollars) $852.80 $856.30 $3.40 $819.82 $839.10 $127.70 Our investment objective continues$99.60 to focus on maximizing total returns while $2.02 $3.20 $797.95 $1.86 $3.00 $112.50 $83.20 $1.76 $1.81 $2.80 $2.80 investing conservatively. Net effective annual yield on$1.70 our investment portfolio was $98.82 $64.59 $62.39 $82.04 3.4% for the year ended December 31, 2019 compared to 3.3% for the year ended December 31, 2018. Our duration on fixed maturities was 3.3 years at December 31, 2019 compared to 3.6 years at December 31, 2018. We continue to believe that $22.89 our$(13.85) current portfolio position and strong underlying operating cash flow provides sufficient liquidity to meet our needs. As of December 31, 2019, Safety held 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 $44.42015 million2016 in cash2017 and2018 cash equivalents2019 and we have2015 no outstanding2016 2017 debt.2018 2019 Cash Dividends Paid Total Revenues1 Cash Flows from Operations Net Income Total Assets Per Common Share (Dollars in Millions) (Dollars in Millions) (Dollars in Millions) (Dollars in Billions) (Dollars) $852.80 $856.30 $3.40 $819.82 $839.10 $127.70 $99.60 $2.02 $3.20 $797.95 $1.86 $3.00 $112.50 $83.20 $1.76 $1.81 $2.80 $2.80 $1.70 $98.82 $64.59 $62.39 $82.04 $22.89 $(13.85) 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 2 Safety2015 Insurance2016 Annual Report2017 20192018 2019 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 Our insurance subsidiaries ‘‘A’’ (Excellent) rating was reaffirmed by A.M. Best on April 23, 2019. In reaffirming the rating, A.M. Best recognized our solid risk- adjusted capitalization, historically strong 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 and disciplined underwriting approach as important strengths. Our commitment to environmental, social and governance (“ESG”) causes are With the support incorporated into our corporate culture. For example, we conduct most of our operations in a building that was remodeled in 2018 to update lighting, heating, of an experienced, ventilation and air conditioning systems with state-of-the-art and environmentally knowledgeable and focused technologies. In addition, approximately half of our employees take part dedicated senior in a work from home program that helps contribute to a flexible work-life balance and allows the Company to minimize the footprint required at our home office. management team, This additionally limits our workforce’s commute which benefits the environment. we continue to achieve We create a workplace where all employees are treated with dignity and respect, operational and and individual differences are valued, all with the goal of securing the trust financial excellence. and satisfaction of our employees. The Company is committed to a policy of inclusiveness and is committed to actively seeking out highly qualified candidates with diverse gender, race, color, religion, ethnicity, age, marital status, handicap, sexual orientation, gender identity or expression, and backgrounds.