10-Q 1 saft-20240331x10q.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 March 31, 2024

OR

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 May 2, 2024 there were 14,836,565 shares of common stock with a par value of $0.01 per share outstanding.

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

24

Item 3.

Quantitative and Qualitative Information about Market Risk

42

Item 4.

Controls and Procedures

42

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

46

SIGNATURE

47

2

Safety Insurance Group, Inc. and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands, except share data)

    

March 31, 

    

December 31, 

2024

2023

(Unaudited)

Assets

Investments:

Fixed maturities, available for sale, at fair value (amortized cost: $1,119,116 and $1,120,682, allowance for expected credit losses of $1,349 and $1,208)

$

1,043,556

$

1,052,145

Equity securities, at fair value (cost: $192,721 and $221,809)

 

216,598

 

238,022

Other invested assets

 

138,270

 

133,946

Total investments

 

1,398,424

 

1,424,113

Cash and cash equivalents

 

30,801

 

38,152

Accounts receivable, net of allowance for expected credit losses of $824 and $1,053

 

269,491

 

256,687

Receivable for securities sold

 

322

 

124

Accrued investment income

 

8,012

 

7,261

Taxes recoverable

 

 

623

Receivable from reinsurers related to paid loss and loss adjustment expenses

 

15,359

 

13,129

Receivable from reinsurers related to unpaid loss and loss adjustment expenses

 

121,504

 

112,623

Ceded unearned premiums

 

34,029

 

32,346

Deferred policy acquisition costs

 

93,711

 

91,917

Deferred income taxes

 

14,667

 

12,150

Equity and deposits in pools

 

36,410

 

35,247

Operating lease right-of-use-assets

19,078

 

19,756

Goodwill

17,093

17,093

Intangible assets

7,340

7,551

Other assets

 

27,198

 

25,232

Total assets

$

2,093,439

$

2,094,004

Liabilities

Loss and loss adjustment expense reserves

$

603,796

$

603,081

Unearned premium reserves

 

544,075

 

528,150

Accounts payable and accrued liabilities

 

60,615

 

64,235

Payable for securities purchased

 

6,434

 

1,863

Payable to reinsurers

 

12,496

 

15,941

Taxes payable

780

Short-term debt

30,000

Long-term debt

30,000

Operating lease liabilities

19,078

19,756

Other liabilities

 

9,094

 

26,711

Total liabilities

 

1,286,368

 

1,289,737

Commitments and contingencies (Note 8)

Shareholders’ equity

Common stock: $0.01 par value; 30,000,000 shares authorized; 17,994,242 and 17,949,484 shares issued

180

179

Additional paid-in capital

 

227,820

 

226,380

Accumulated other comprehensive loss, net of taxes

 

(58,626)

 

(53,191)

Retained earnings

 

787,990

 

781,192

Treasury stock, at cost: 3,157,577 and 3,157,577 shares

 

(150,293)

 

(150,293)

Total shareholders’ equity

 

807,071

 

804,267

Total liabilities and shareholders’ equity

$

2,093,439

$

2,094,004

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

3

Safety Insurance Group, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

(Dollars in thousands, except per share data)

Three Months Ended March 31, 

    

    

2024

    

2023

 

Net earned premiums

$

236,053

$

191,735

Net investment income

 

15,231

 

13,654

Earnings from partnership investments

 

1,772

 

2,166

Net realized gains on investments

 

492

 

733

Change in net unrealized gains on equity securities

7,665

770

Credit loss expense

(142)

(922)

Commission income

1,808

1,483

Finance and other service income

 

5,354

 

4,140

Total revenue

 

268,233

 

213,759

Losses and loss adjustment expenses

 

168,399

 

167,153

Underwriting, operating and related expenses

 

72,267

 

60,033

Other expense

 

1,837

 

1,670

Interest expense

 

123

 

210

Total expenses

 

242,626

 

229,066

Income (loss) before income taxes

 

25,607

 

(15,307)

Income tax expense (benefit)

 

5,529

 

(2,970)

Net income (loss)

$

20,078

$

(12,337)

Earnings (loss) per weighted average common share:

Basic

$

1.36

$

(0.84)

Diluted

$

1.36

$

(0.84)

Cash dividends paid per common share

$

0.90

$

0.90

Number of shares used in computing earnings per share:

Basic

 

14,667,107

 

14,682,507

Diluted

 

14,696,590

 

14,761,861

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

4

Safety Insurance Group, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(Dollars in thousands)

Three Months Ended March 31, 

    

2024

    

2023

Net income (loss)

$

20,078

$

(12,337)

Other comprehensive loss, net of tax:

Unrealized holding (losses) gains during the period, net of income tax benefit of ($1,341) and $4,209.

 

(5,046)

 

15,834

Reclassification adjustment for net realized gains on investments included in net income, net of income tax benefit of ($103) and ($154).

 

(389)

 

(579)

Other comprehensive income (loss), net of tax:

 

(5,435)

 

15,255

Comprehensive income

$

14,643

$

2,918

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

5

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, 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

    

    

    

    

    

Accumulated

    

    

    

    

    

    

Other

Additional

Comprehensive

Total

Common

Paid-in

Income (Loss),

Retained

Treasury

Shareholders’

Capital

Net of Taxes

Earnings

Stock

Equity

Balance at December 31, 2023

$

179

$

226,380

$

(53,191)

$

781,192

$

(150,293)

$

804,267

Net income, January 1 to March 31, 2024

 

20,078

 

20,078

Unrealized gains on securities available for sale, net of deferred federal income taxes

 

(5,435)

 

(5,435)

Restricted share awards issued

 

 

599

 

599

Recognition of employee share-based compensation, net of deferred federal income taxes

1

 

841

 

842

Dividends paid and accrued

 

(13,280)

 

(13,280)

Balance at March 31, 2024

$

180

$

227,820

$

(58,626)

$

787,990

$

(150,293)

$

807,071

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

6

Safety Insurance Group, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in thousands)

Three Months Ended March 31, 

    

2024

    

2023

Cash flows from operating activities:

Net income (loss)

$

20,078

$

(12,337)

Adjustments to reconcile net income to net cash used for operating activities:

Investment amortization, net

 

(41)

 

(69)

Fixed asset depreciation, net

 

2,260

 

1,686

Stock based compensation

1,440

1,255

Credit for deferred income taxes

 

(1,072)

 

(697)

Net realized gains on investments

 

(492)

 

(733)

Credit loss expense

142

922

Earnings from partnership investments

 

(226)

 

(2,166)

Change in net unrealized gains on equity securities

(7,665)

(770)

Changes in assets and liabilities:

Accounts receivable, net

 

(12,804)

 

(13,018)

Accrued investment income

 

(751)

 

496

Receivable from reinsurers

 

(11,111)

 

(542)

Ceded unearned premiums

 

(1,683)

 

(465)

Deferred policy acquisition costs

 

(1,794)

 

(1,337)

Taxes recoverable/payable

1,403

(6,564)

Other assets

 

(2,112)

 

434

Loss and loss adjustment expense reserves

 

715

 

20,541

Unearned premium reserves

 

15,925

 

11,615

Accounts payable and accrued liabilities

 

(3,285)

 

(20,123)

Payable to reinsurers

 

(3,445)

 

(1,549)

Other liabilities

 

(16,617)

 

10,529

Net cash used for operating activities

 

(21,135)

 

(12,892)

Cash flows from investing activities:

Fixed maturities purchased

 

(30,825)

 

(22,528)

Short term investments purchased

 

 

(79)

Equity securities purchased

 

(13,720)

 

(12,282)

Other invested assets purchased

 

(5,654)

 

(8,482)

Proceeds from sales and paydowns of fixed maturities

 

25,500

 

36,818

Proceeds from maturities, redemptions, and calls of fixed maturities

 

11,147

 

3,132

Proceed from sales of equity securities

 

43,435

 

8,310

Proceeds from other invested assets redeemed

1,583

2,301

Acquisition, net of cash received

(1,000)

Fixed assets purchased

 

(3,067)

 

(535)

Net cash provided by investing activities

 

27,399

 

6,655

Cash flows from financing activities:

Proceeds from FHLB loan

 

 

10,000

Dividends paid to shareholders

 

(13,615)

 

(13,747)

Net cash used for financing activities

 

(13,615)

 

(3,747)

Net increase (decrease) in cash and cash equivalents

 

(7,351)

 

(9,984)

Cash and cash equivalents at beginning of year

 

38,152

 

25,300

Cash and cash equivalents at end of period

$

30,801

$

15,316

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

7

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 transactions, including commission income and other expense, have been eliminated. Eliminated commission income totaled $239 and $180 for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, fiduciary assets held by SNIA were immaterial and less than $200.

The financial information for the three months ended March 31, 2024 and 2023 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, 2023 is derived from the audited consolidated financial statements included in the Company's 2023 Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on February 28, 2024.

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 2023 Annual Report on Form 10-K filed with the SEC on February 28, 2024.

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”).

2. Recent Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU updated reportable segment disclosures primarily through enhanced disclosures about significant segment expenses. This ASU does not change how a Company identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments. This ASU is effective for fiscal years starting January 1, 2024, and for interim periods starting January 1, 2025, and will be applied on a retrospective basis. The ASU will not have a material impact on the Company’s consolidated financial position, results of operations or cash flows, but the ASU will require additional disclosures to our 2024 annual and 2025 interim consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU updated the required income tax disclosures to include disclosure of income taxes paid disaggregated by jurisdiction and greater disaggregation of information in the required rate reconciliation. This ASU is effective for fiscal years starting January 1, 2025, and will be applied on a prospective basis. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

8

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 March 31, 

2024

2023

Earnings attributable to common shareholders - basic and diluted:

Net income (loss) from continuing operations

$

20,078

$

(12,337)

Allocation of income for participating shares

(88)

Net income (loss) from continuing operations attributed to common shareholders

$

19,990

$

(12,337)

Earnings per share denominator - basic and diluted

Total weighted average common shares outstanding, including participating shares

14,731,713

14,748,357

Less: weighted average participating shares

(64,606)

(65,850)

Basic earnings per share denominator

14,667,107

14,682,507

Common equivalent shares- non-vested performance stock grants

 

29,483

 

79,354

Diluted earnings per share denominator

 

14,696,590

 

14,761,861

Basic earnings per share

$

1.36

$

(0.84)

Diluted earnings per share

$

1.36

$

(0.84)

Undistributed earnings attributable to common shareholders - basic and diluted:

Net income (loss) from continuing operations attributable to common shareholders -Basic

$

1.36

$

(0.84)

Dividends declared

(0.90)

(0.90)

Undistributed earnings

$

0.46

$

(1.74)

Net income from continuing operations attributable to common shareholders -Diluted

$

1.36

$

(0.84)

Dividends declared

(0.90)

(0.90)

Undistributed earnings

$

0.46

$

(1.74)

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. As a result of the net loss for the three months ended March 31, 2023, the Company was required to use basic weighted average common shares outstanding in the calculation of diluted loss per share, since the inclusion of weighted average participating shares and common equivalent shares-non-vested performance stock grants would have been antidilutive to the (loss) earnings per share calculation. There were no anti-dilutive shares related to non-vested performance stock grants for the three months ended March 31, 2024 and 2023, respectively.

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 increased 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”).

9

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 March 31, 2024, there were 366,422 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.

10

The following table summarizes restricted stock activity under the Amended 2018 Plan during the three months ended March 31, 2024 assuming a target payout for the 2024 performance-based shares.

    

Shares 

    

Weighted

Performance-based

    

Weighted

Under

Average

Shares Under

Average

Restriction

Fair Value

Restriction

Fair Value

Outstanding at beginning of year

 

66,929

$

81.58

78,991

$

81.40

Granted

 

38,221

85.61

25,390

(1)

85.61

Vested and unrestricted

 

(38,686)

82.03

(13,912)

79.27

Forfeited

(1,784)

80.11

(17,169)

79.91

Outstanding at end of period

 

64,680

$

83.68

73,300

$

83.62

(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 March 31, 2024, there was $7,776 of unrecognized compensation expense related to non-vested restricted stock awards that is expected to be recognized over a weighted average period of 1.9 years.  The total fair value of the shares that were vested and unrestricted during the three months ended March 31, 2024 and 2023 was $4,276 and $5,359, respectively.  For the three months ended March 31, 2024 and 2023, the Company recorded compensation expense related to restricted stock of $1,138 and $991, net of income tax benefits of $302 and $264, 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 March 31, 2024

    

Cost or

    

Allowance for

    

Gross Unrealized

    

Estimated

Amortized

Expected Credit

Fair

Cost

Losses

Gains

Losses (3)

Value

U.S. Treasury securities

$

2,420

$

$

4

$

(122)

$

2,302

Obligations of states and political subdivisions

 

38,576

 

 

202

 

(2,393)

 

36,385

Residential mortgage-backed securities (1)

 

266,625

 

 

982

 

(25,445)

 

242,162

Commercial mortgage-backed securities

 

150,621

 

 

180

 

(14,240)

 

136,561

Other asset-backed securities

 

59,192

 

 

145

 

(2,488)

 

56,849

Corporate and other securities

 

601,682

 

(1,349)

 

2,783

 

(33,819)

 

569,297

Subtotal, fixed maturity securities 

 

1,119,116

 

(1,349)

 

4,296

 

(78,507)

 

1,043,556

Equity securities (2)

 

192,721

 

 

30,729

 

(6,852)

 

216,598

Other invested assets (4)

 

138,270

 

 

 

 

138,270

Totals

$

1,450,107

$

(1,349)

$

35,025

$

(85,359)

$

1,398,424

11

As of December 31, 2023

    

Cost or

    

Allowance for

    

Gross Unrealized

    

Estimated

Amortized

Expected Credit

Fair

Cost

Losses

Gains

Losses (3)

Value

U.S. Treasury securities

$

2,420

$

$

15

$

(115)

$

2,320

Obligations of states and political subdivisions

 

38,682

 

 

262

 

(2,421)

 

36,523

Residential mortgage-backed securities (1)

 

267,271

 

 

1,945

 

(21,979)

 

247,237

Commercial mortgage-backed securities

 

153,923

 

 

200

 

(14,273)

 

139,850

Other asset-backed securities

 

64,043

 

 

217

 

(2,927)

 

61,333

Corporate and other securities

 

594,343

 

(1,208)

 

3,785

 

(32,038)

 

564,882

Subtotal, fixed maturity securities 

 

1,120,682

 

(1,208)

 

6,424

 

(73,753)

 

1,052,145

Equity securities (2)

 

221,809

 

 

25,707

 

(9,494)

 

238,022

Other invested assets (4)

 

133,946

 

 

 

 

133,946

Totals

$

1,476,437

$

(1,208)

$

32,131

$

(83,247)

$

1,424,113

(1)Residential mortgage-backed securities consists 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 include common stock, preferred stock, mutual funds and interests in mutual funds held to fund the Company’s executive deferred compensation plan.
(3)The Company’s investment portfolio included 855 and 861 securities in an unrealized loss position at March 31, 2024 and December 31, 2023, respectively.
(4)Other invested assets are accounted for under the equity method which approximated fair value.

The amortized cost and the estimated fair value of fixed maturity securities, by maturity, are shown below for the period indicated. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

As of March 31, 2024

    

Amortized

    

Estimated

Cost

Fair Value

Due in one year or less

$

34,690

$

34,363

Due after one year through five years

 

339,423

 

323,113

Due after five years through ten years

 

244,223

 

227,648

Due after ten years through twenty years

 

24,092

 

22,573

Due after twenty years

 

250

 

288

Asset-backed securities

 

476,438

 

435,571

Totals

$

1,119,116

$

1,043,556

The gross realized gains and losses on sales of investments were as follows for the periods indicated.

Three Months Ended March 31, 

    

2024

    

2023

Gross realized gains

Fixed maturity securities

$

230

$

539

Equity securities

 

3,137

 

1,523

Gross realized losses

Fixed maturity securities

 

(363)

 

(622)

Equity securities

 

(2,512)

 

(707)

Net realized gains on investments

$

492

$

733

In the normal course of business, the Company enters into transactions involving various types of financial instruments, including investments in fixed maturities and equity securities. Investment transactions have credit exposure to the extent that a counter party may default on an obligation to the Company. Credit risk is a consequence of carrying, trading and investing in securities. To manage credit risk, the Company focuses on higher quality fixed income securities, reviews the credit strength of all companies in which it invests, limits its exposure in any one investment and monitors the portfolio quality, taking into account credit ratings assigned by recognized statistical rating organizations.

12

The following tables as of March 31, 2024 and December 31, 2023 present the gross unrealized losses included in the Company’s investment portfolio and the fair value of those securities aggregated by investment category. The tables also present the length of time that they have been in a continuous unrealized loss position.

As of March 31, 2024

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

$

$

$

1,700

$

122

$

1,700

$

122

Obligations of states and political subdivisions

 

3,443

 

10

 

29,243

 

2,383

 

32,686

 

2,393

Residential mortgage-backed securities

 

25,451

 

299

 

179,261

 

25,146

 

204,712

 

25,445

Commercial mortgage-backed securities

 

3,693

 

122

 

127,598

 

14,118

 

131,291

 

14,240

Other asset-backed securities

 

23,328

209

24,231

2,279

47,559

2,488

Corporate and other securities

 

60,976

 

1,712

 

361,771

 

32,107

 

422,747

 

33,819

Subtotal, fixed maturity securities

 

116,891

 

2,352

 

723,804