SAFETY INSURANCE GROUP INC [SAFT] Filings

10-Q 1 saft-20230630x10q.htm 10-Q

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______to ______

Commission File Number: 000-50070

SAFETY INSURANCE GROUP, INC.

(Exact name of registrant as specified in its charter)


Delaware		13-4181699
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

20 Custom House Street, Boston, Massachusetts 02110

(Address of principal executive offices including zip code)

(617) 951-0600

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.01 per share	SAFT	The Nasdaq Stock Market, LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ◻ No ☒

As of August 2, 2023 there were 14,791,907 shares of common stock with a par value of $0.01 per share outstanding.

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SAFETY INSURANCE GROUP, INC.

TABLE OF CONTENTS

		Page No.
Part I. Financial Information
Item 1.	Consolidated Financial Statements
	Consolidated Balance Sheets	3
	Consolidated Statements of Operations	4
	Consolidated Statements of Comprehensive Income (Loss)	5
	Consolidated Statements of Changes in Shareholders’ Equity	6
	Consolidated Statements of Cash Flows	7
	Notes to Unaudited Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Information about Market Risk	42
Item 4.	Controls and Procedures	43
Part II. Other Information
Item 1	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 3.	Defaults upon Senior Securities	44
Item 4.	Mine Safety Disclosures	44
Item 5.	Other Information	44
Item 6.	Exhibits	44
EXHIBIT INDEX		45
SIGNATURE		46

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Safety Insurance Group, Inc. and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands, except share data)


	June 30,		December 31,
	2023		2022
	(Unaudited)
Assets
Investments:
Fixed maturities, available for sale, at fair value (amortized cost: $1,112,843 and $1,152,779, allowance for expected credit losses of $1,635 and $678)	$	1,017,467	$	1,050,155
Short term investments, at fair value (cost: $79 and $0)		79		—
Equity securities, at fair value (cost: $214,309 and $231,444)		230,056		240,155
Other invested assets		125,943		112,850
Total investments		1,373,545		1,403,160
Cash and cash equivalents		25,388		25,300
Accounts receivable, net of allowance for expected credit losses of $996 and $1,446		238,563		192,542
Receivable for securities sold		607		877
Accrued investment income		7,200		8,212
Taxes recoverable		3,129		—
Receivable from reinsurers related to paid loss and loss adjustment expenses		27,494		12,988
Receivable from reinsurers related to unpaid loss and loss adjustment expenses		96,780		93,394
Ceded unearned premiums		29,973		28,453
Deferred policy acquisition costs		84,423		75,582
Deferred income taxes		20,515		21,074
Equity and deposits in pools		34,249		33,648
Operating lease right-of-use-assets		21,734		23,336
Goodwill		17,093		17,093
Intangible assets		7,439		7,856
Other assets		27,973		29,054
Total assets	$	2,016,105	$	1,972,569

Liabilities
Loss and loss adjustment expense reserves	$	565,027	$	549,598
Unearned premium reserves		488,788		433,375
Accounts payable and accrued liabilities		59,557		73,875
Payable for securities purchased		—		1,359
Payable to reinsurers		13,069		11,444
Taxes payable		—		1,729
Debt		35,000		35,000
Operating lease liabilities		21,734		23,336
Other liabilities		39,180		30,854
Total liabilities		1,222,355		1,160,570

Commitments and contingencies (Note 8)

Shareholders’ equity
Common stock: $0.01 par value; 30,000,000 shares authorized; 17,949,717 and 17,879,095 shares issued		179		179
Additional paid-in capital		224,476		222,049
Accumulated other comprehensive (loss) income, net of taxes		(74,055)		(80,538)
Retained earnings		793,443		815,309
Treasury stock, at cost: 3,157,577 and 3,083,364 shares		(150,293)		(145,000)
Total shareholders’ equity		793,750		811,999
Total liabilities and shareholders’ equity	$	2,016,105	$	1,972,569

The accompanying notes are an integral part of these financial statements.

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Safety Insurance Group, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

(Dollars in thousands, except per share data)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022

Net earned premiums	$	202,225	$	188,333	$	393,960	$	375,421
Net investment income		13,836		11,635		27,490		22,225
Earnings from partnership investments		553		5,967		2,719		8,799
Net realized gains on investments		108		3,152		841		7,362
Change in net unrealized gains on equity securities		6,266		(28,885)		7,036		(41,919)
Credit loss expense		(35)		—		(957)		—
Commission income		1,758		—		3,241		—
Finance and other service income		4,732		3,403		8,872		6,720
Total revenue		229,443		183,605		443,202		378,608

Losses and loss adjustment expenses		143,523		112,715		310,676		235,881
Underwriting, operating and related expenses		62,582		60,872		122,615		122,466
Other expense		1,523		—		3,193		—
Interest expense		348		131		558		260
Total expenses		207,976		173,718		437,042		358,607

Income before income taxes		21,467		9,887		6,160		20,001
Income tax expense		4,466		1,986		1,496		4,262
Net income	$	17,001	$	7,901	$	4,664	$	15,739

Earnings per weighted average common share:
Basic	$	1.15	$	0.54	$	0.32	$	1.07
Diluted	$	1.15	$	0.53	$	0.31	$	1.06

Cash dividends paid per common share	$	0.90	$	0.90	$	1.80	$	1.80

Number of shares used in computing earnings per share:
Basic		14,681,034		14,599,057		14,681,766		14,613,399
Diluted		14,720,520		14,702,627		14,741,076		14,715,099

The accompanying notes are an integral part of these financial statements.

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Safety Insurance Group, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(Dollars in thousands)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net income	$	17,001	$	7,901	$	4,664	$	15,739

Other comprehensive income (loss), net of tax:
Unrealized holding (losses) gains during the period, net of income tax benefit of ($2,309), ($9,755), $1,899 and ($21,460).		(8,687)		(36,696)		7,147		(80,727)
Reclassification adjustment for net realized gains on investments included in net income, net of income tax benefit of ($23), ($662), ($177), ($1,546).		(85)		(2,490)		(664)		(5,816)
Other comprehensive income (loss), net of tax:		(8,772)		(39,186)		6,483		(86,543)

Comprehensive income (loss)	$	8,229	$	(31,285)	$	11,147	$	(70,804)

The accompanying notes are an integral part of these financial statements.

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Safety Insurance Group, Inc. and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)

(Dollars in thousands)


					Accumulated
					Other
			Additional		Comprehensive						Total
	Common		Paid-in		Income (loss),		Retained		Treasury		Shareholders’
	Stock		Capital		Net of Taxes		Earnings		Stock		Equity
Balance at December 31, 2021	$	178	$	216,070	$	24,579	$	821,743	$	(135,397)	$	927,173
Net income, January 1 to March 31, 2022		—		—		—		7,838		—		7,838
Unrealized losses on securities available for sale, net of deferred federal income taxes		—		—		(47,357)		—		—		(47,357)
Restricted share awards issued		1		603		—		—		—		604
Recognition of employee share-based compensation, net of deferred federal income taxes		—		1,479		—		—		—		1,479
Dividends paid and accrued		—		—		—		(13,246)		—		(13,246)
Acquisition of treasury stock		—		—		—		—		(14,603)		(14,603)
Balance at March 31, 2022		179		218,152		(22,778)		816,335		(150,000)		861,888
Net income, April 1 to June 30, 2022		—		—		—		7,901		—		7,901
Unrealized gains on securities available for sale, net of deferred federal income taxes		—		—		(39,186)		—		—		(39,186)
Recognition of employee share-based compensation, net of deferred federal income taxes		—		1,301		—		—		—		1,301
Dividends paid and accrued		—		—		—		(13,281)		—		(13,281)
Balance at June 30, 2022	$	179	$	219,453	$	(61,964)	$	810,955	$	(150,000)	$	818,623


					Accumulated
					Other
			Additional		Comprehensive						Total
	Common		Paid-in		Income (loss),		Retained		Treasury		Shareholders’
	Stock		Capital		Net of Taxes		Earnings		Stock		Equity
Balance at December 31, 2022	$	179	$	222,049	$	(80,538)	$	815,309	$	(145,000)	$	811,999
Net loss, January 1 to March 31, 2023		—		—		—		(12,337)		—		(12,337)
Unrealized gains on securities available for sale, net of deferred federal income taxes		—		—		15,255		—		—		15,255
Restricted share awards issued		—		522		—		—		—		522
Recognition of employee share-based compensation, net of deferred federal income taxes		—		733		—		—		—		733
Dividends paid and accrued		—		—		—		(13,247)		—		(13,247)
Balance at March 31, 2023		179		223,304		(65,283)		789,725		(145,000)		802,925
Net income, April 1 to June 30, 2023		—		—		—		17,001		—		17,001
Unrealized losses on securities available for sale, net of deferred federal income taxes		—		—		(8,772)		—		—		(8,772)
Restricted share awards issued		—		72				—		—		72
Recognition of employee share-based compensation, net of deferred federal income taxes		—		1,100		—		—		—		1,100
Dividends paid and accrued		—		—		—		(13,283)		—		(13,283)
Acquisition of treasury stock										(5,293)		(5,293)
Balance at June 30, 2023	$	179	$	224,476	$	(74,055)	$	793,443	$	(150,293)	$	793,750

The accompanying notes are an integral part of these financial statements.

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Safety Insurance Group, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in thousands)


	Six Months Ended June 30,
	2023		2022
Cash flows from operating activities:
Net income	$	4,664	$	15,739
Adjustments to reconcile net income to net cash provided by operating activities:
Investment amortization, net		(193)		446
Fixed asset depreciation, net		3,339		3,379
Stock based compensation		2,428		3,384
(Credit) provision for deferred income taxes		(1,163)		5,963
Net realized gains on investments		(841)		(7,362)
Credit loss expense		957		—
Earnings from partnership investments		(2,403)		(4,703)
Change in net unrealized gains on equity securities		(7,036)		41,919
Changes in assets and liabilities:
Accounts receivable, net		(46,021)		(11,882)
Accrued investment income		1,012		301
Receivable from reinsurers		(17,892)		9,625
Ceded unearned premiums		(1,520)		(2,612)
Deferred policy acquisition costs		(8,841)		(494)
Taxes recoverable/payable		(4,911)		(14,645)
Other assets		(1,890)		(6,422)
Loss and loss adjustment expense reserves		15,429		(22,506)
Unearned premium reserves		55,413		7,968
Accounts payable and accrued liabilities		(13,920)		(21,703)
Payable to reinsurers		1,625		4,151
Other liabilities		8,326		(821)
Net cash used for operating activities		(13,438)		(275)

Cash flows from investing activities:
Fixed maturities purchased		(30,126)		(113,425)
Short term investments purchased		(79)		(5)
Equity securities purchased		(21,382)		(26,677)
Other invested assets purchased		(12,782)		(11,798)
Proceeds from sales and paydowns of fixed maturities		63,243		83,865
Proceeds from maturities, redemptions, and calls of fixed maturities		5,320		62,560
Proceed from sales of equity securities		39,638		22,401
Proceeds from other invested assets redeemed		2,414		887
Fixed assets purchased		(552)		(691)
Net cash provided by investing activities		45,694		17,117

Cash flows from financing activities:
Proceeds from FHLB loan		20,000		—
Payments on FHLB loan		(20,000)		—
Dividends paid to shareholders		(26,928)		(26,759)
Acquisition of treasury stock		(5,240)		(14,603)
Net cash used for financing activities		(32,168)		(41,362)

Net increase (decrease) in cash and cash equivalents		88		(24,520)
Cash and cash equivalents at beginning of year		25,300		63,603
Cash and cash equivalents at end of period	$	25,388	$	39,083

The accompanying notes are an integral part of these financial statements.

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In this Form 10-Q, Notes to the Unaudited Consolidated Financial Statements, dollar amounts are presented in thousands, except per share data.

1. Basis of Presentation

The consolidated financial statements have been prepared on the basis of accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates.

The consolidated financial statements include Safety Insurance Group, Inc. and its subsidiaries (the “Company”). The subsidiaries consist of Safety Insurance Company, Safety Indemnity Insurance Company, Safety Property and Casualty Insurance Company, Safety Northeast Insurance Company, Safety Northeast Insurance Agency, Inc. (“SNIA”), and Safety Management Corporation (“SMC”), which is SNIA’s holding company. All intercompany commission transactions, including commission income and underwriting, operating and related expenses, have been eliminated. Commission income totaled $259 and $439 for the three and six months ended June 30, 2023, respectively.

The financial information for the three and six months ended June 30, 2023 and 2022 is unaudited; however, in the opinion of the Company, the information includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial condition, results of operations, and cash flows for the periods. The financial information as of December 31, 2022 is derived from the audited consolidated financial statements included in the Company's 2022 Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on February 28, 2023.

These unaudited interim consolidated financial statements may not be indicative of financial results for the full year and should be read in conjunction with the audited consolidated financial statements included in the Company’s 2022 Annual Report on Form 10-K filed with the SEC on February 28, 2023.

The Company is a leading provider of property and casualty insurance focused primarily on the Massachusetts market. The Company’s principal product line is automobile insurance. The Company primarily operates through its insurance company subsidiaries, Safety Insurance Company, Safety Indemnity Insurance Company, Safety Property and Casualty Insurance Company and Safety Northeast Insurance Company (together referred to as the “Insurance Subsidiaries”).

The Insurance Subsidiaries began writing private passenger automobile and homeowners insurance in New Hampshire during 2008, personal umbrella insurance in New Hampshire during 2009, and commercial automobile insurance in New Hampshire during 2011. The Insurance Subsidiaries began writing all of these lines of business in Maine during 2016.

SNIA was established on December 1, 2022 when the Company acquired the assets and operations of Northeast Metrowest Insurance Agency, Inc. (“Northeast / Metrowest”), an independent insurance agency, through its wholly-owned subsidiary, SMC. SNIA provides personal and commercial property and casualty insurance products to customers on behalf of the Insurance Subsidiaries and third-party insurance carriers. The Company conducted business with Northeast / Metrowest prior to its acquisition. During the eleven months prior to December 1, 2022, all commissions paid to Northeast / Metrowest were reflected as expenses and were conducted at standard market rates. Subsequent to the acquisition date, all business conducted with SNIA was considered an intercompany transaction and have been eliminated. As of June 30, 2023, fiduciary assets held by SNIA were immaterial and less than $100.

2. Recent Accounting Pronouncements

There are no recent accounting pronouncements that are applicable to the Company.

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3. Earnings per Weighted Average Common Share

Basic earnings per weighted average common share (“EPS”) are calculated by dividing net income by the weighted average number of basic common shares outstanding during the period. Diluted earnings per share amounts are based on the weighted average number of common shares including non-vested performance stock grants.

The following table sets forth the computation of basic and diluted EPS for the periods indicated.


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Earnings attributable to common shareholders - basic and diluted:
Net income from continuing operations	$	17,001	$	7,901	$	4,664	$	15,739
Allocation of income for participating shares		(78)		(36)		(21)		(71)
Net income from continuing operations attributed to common shareholders	$	16,923	$	7,865	$	4,643	$	15,668
Earnings per share denominator - basic and diluted
Total weighted average common shares outstanding, including participating shares		14,748,502		14,664,329		14,748,430		14,679,049
Less: weighted average participating shares		(67,468)		(65,272)		(66,664)		(65,650)
Basic earnings per share denominator		14,681,034		14,599,057		14,681,766		14,613,399
Common equivalent shares- non-vested performance stock grants		39,486		103,570		59,310		101,700
Diluted earnings per share denominator		14,720,520		14,702,627		14,741,076		14,715,099

Basic earnings per share	$	1.15	$	0.54	$	0.32	$	1.07
Diluted earnings per share	$	1.15	$	0.53	$	0.31	$	1.06

Undistributed earnings attributable to common shareholders - basic and diluted:
Net income from continuing operations attributable to common shareholders -Basic	$	1.15	$	0.54	$	0.32	$	1.07
Dividends declared		(0.90)		(0.90)		(1.80)		(1.80)
Undistributed earnings	$	0.25	$	(0.36)	$	(1.48)	$	(0.73)

Net income from continuing operations attributable to common shareholders -Diluted	$	1.15	$	0.53	$	0.31	$	1.06
Dividends declared		(0.90)		(0.90)		(1.80)		(1.80)
Undistributed earnings	$	0.25	$	(0.37)	$	(1.49)	$	(0.74)

Diluted EPS excludes non-vested performance stock grants with exercise prices and exercise tax benefits greater than the average market price of the Company’s common stock during the period because their inclusion would be anti-dilutive. There were no anti-dilutive shares related to non-vested stock grants for the three months ended June 30, 2023 and 2022, respectively. There were 2,731 anti-dilutive shares related to non-vested stocks grants for the six months ended June 30, 2023 and no anti-dilutive shares related to non-vested stocks grants for the six months ended June 30, 2022.

4. Share-Based Compensation

2018 Long Term Incentive Plan

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

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separately or in tandem with other awards. Eligibility to participate includes officers, directors, employees and other individuals who provide bona fide services to the Company. The Amended 2018 Plan supersedes the Company’s 2002 Management Omnibus Incentive Plan (“the 2002 Incentive Plan”).

The Amended 2018 Plan establishes a pool of 700,000 shares of common stock available for issuance to our employees and other eligible participants. The Board of Directors and the Compensation Committee intend to issue awards under the Amended 2018 Plan in the future.

The maximum number of shares of common stock between both the Amended 2018 Plan and 2002 Incentive Plan with respect to which awards may be granted is 3,200,000. No further grants will be allowed under the 2002 Incentive Plan. At June 30, 2023, there were 373,422 shares available for future grant.

Accounting and Reporting for Stock-Based Awards

Accounting Standards Codification (“ASC”) 718, Compensation — Stock Compensation, requires the Company to measure and recognize the cost of employee services received in exchange for an award of equity instruments. Under the provisions of ASC 718, share-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite service period (generally the vesting period of the equity grant).

Restricted Stock

Service-based restricted stock awarded in the form of unvested shares is recorded at the market value of the Company’s common stock on the grant date and amortized ratably as compensation expense over the requisite service period. Service-based restricted stock awards generally vest over a three-year period and vest 30% on the first and second anniversaries of the grant date and 40% on the third anniversary of the grant date, except for non-executive employees’ restricted stock awards granted prior to 2018 which vest ratably over a five-year service period and independent directors’ stock awards which vest immediately. Our independent directors are subject to stock ownership guidelines, which require them to have a value four times their annual cash retainer.

In addition to service-based awards, the Company grants performance-based restricted shares to certain employees. These performance shares cliff vest after a three-year performance period provided certain performance measures are attained. A portion of these awards, which contain a market condition, vest according to the level of total shareholder return achieved by the Company compared to its property-casualty insurance peers over a three-year period. The remainder, which contain a performance condition, vest according to the level of Company’s combined ratio results compared to a target based on its property-casualty insurance peers.

Actual payouts can range from 0% to 200% of target shares awarded depending upon the level of achievement of the respective market and performance conditions during a three calendar-year performance period. Compensation expense for share awards with a performance condition is based on the probable number of awards expected to vest using the performance level most likely to be achieved at the end of the performance period.

Performance-based awards with market conditions are accounted for and measured differently from awards that have a performance or service condition. The effect of a market condition is reflected in the award’s fair value on the grant date. That fair value is recognized as compensation cost over the requisite service period regardless of whether the market-based performance objective has been satisfied.

All of the Company’s restricted stock awards are issued as incentive compensation and are equity classified.

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The following table summarizes restricted stock activity under the Amended 2018 Plan during the six months ended June 30, 2023 assuming a target payout for the 2023 performance-based shares.


	Shares	Weighted		Performance-based		Weighted
	Under	Average		Shares Under		Average
	Restriction	Fair Value		Restriction		Fair Value
Outstanding at beginning of year	63,413	$	83.87	75,069		$	84.46
Granted	40,101		80.03	30,693	(1)		81.81
Vested and unrestricted	(36,352)		83.87	(26,599)			90.50
Forfeited	—		—	(172)			83.39
Outstanding at end of period	67,162	$	81.58	78,991		$	81.40

(1)	Includes a true-up of previously awarded performance-based restricted share awards. The updated shares were calculated based on the attainment of pre-established performance objectives and granted under the Amended 2018 Plan.

As of June 30, 2023, there was $7,366 of unrecognized compensation expense related to non-vested restricted stock awards that is expected to be recognized over a weighted average period of 1.7 years. The total fair value of the shares that were vested and unrestricted during the six months ended June 30, 2023 and 2022 was $5,456 and $5,749, respectively. For the six months ended June 30, 2023 and 2022, the Company recorded compensation expense related to restricted stock of $1,918 and $2,673, net of income tax benefits of $510 and $711, respectively, within Underwriting, operating and related expenses on the Consolidated Statements of Operations.

5. Investments

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

As of June 30, 2023

Cost or

Allowance for

Gross Unrealized

Estimated

Amortized

Expected Credit

Fair

Cost

Losses

Gains

Losses (3)

Value

U.S. Treasury securities

1,824

—

(155)

1,669

Obligations of states and political subdivisions

38,892

—

251

(2,875)

36,268

Residential mortgage-backed securities (1)

248,439

—

274

(24,940)

223,773

Commercial mortgage-backed securities

158,640

—

(16,807)

141,915

Other asset-backed securities

68,001

—

(4,266)

63,735

Corporate and other securities

597,047

(1,635)

1,171

(46,476)

550,107

Subtotal, fixed maturity securities

1,112,843

(1,635)

1,778

(95,519)

1,017,467

Short term investments

—

Equity securities (2)