S-1/A 1 a2090172zs-1a.txt S-1/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 2002 REGISTRATION NO. 333-87056 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------ AMENDMENT NO. 8 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------------ SAFETY INSURANCE GROUP, INC. (Exact name of Registrant as specified in its charter) DELAWARE 6331 13-4181699 (State or other jurisdiction (Primary Standard (I.R.S. Employer of Industrial Classification Code Number) Identification No.) incorporation or organization) 20 CUSTOM HOUSE STREET BOSTON, MA 02110 (617) 951-0600 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) ------------------------------ WILLIAM J. BEGLEY, JR. CHIEF FINANCIAL OFFICER AND SECRETARY SAFETY INSURANCE GROUP, INC. 20 CUSTOM HOUSE STREET BOSTON, MA 02110 (617) 951-0600 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------------------ COPIES TO: Robert S. Rachofsky Jeff S. Liebmann LeBoeuf, Lamb, Greene & MacRae, L.L.P. Jonathan L. Freedman 125 West 55th Street Dewey Ballantine LLP New York, NY 10019-5389 1301 Avenue of the Americas New York, NY 10019-6092 ------------------------------ Approximate date of commencement of the proposed sale of the securities to the public: As soon as practicable after the Registration Statement becomes effective. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. / / If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. / / ------------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. SUBJECT TO COMPLETION, DATED NOVEMBER 12, 2002 6,000,000 Shares [LOGO] Safety Insurance Group, Inc. Common Stock --------- Prior to this offering, there has been no public market for our common stock. The initial public offering price of the common stock is expected to be between $13 and $14 per share. Our common stock has been approved for listing on The Nasdaq Stock Market's National Market under the symbol "SAFT," subject to official notice of issuance. The underwriters have an option to purchase a maximum of 900,000 additional shares to cover over-allotments of shares. Investing in our common stock involves risks. See "Risk Factors" on page 13.

Underwriting Proceeds to Price to Discounts and Safety Public Commissions Insurance Group ----------------- ----------------- ----------------- Per Share............................................ $ $ $ Total................................................ $ $ $

Delivery of the shares of common stock will be made on or about , 2002. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Credit Suisse First Boston Jefferies & Company, Inc. The date of this prospectus is , 2002. -------------- TABLE OF CONTENTS

PAGE ---- SUMMARY............................. 1 THE OFFERING........................ 5 SUMMARY HISTORICAL FINANCIAL DATA... 6 RECENT DEVELOPMENTS................. 9 SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA.................... 10 RISK FACTORS........................ 13 THE ACQUISITION..................... 20 THE PREFERRED SHARE EXCHANGE........ 22 THE DIRECT SALE..................... 22 CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING STATEMENTS........ 22 USE OF PROCEEDS..................... 23 DIVIDEND POLICY..................... 24 CAPITALIZATION...................... 25 DILUTION............................ 26 SELECTED HISTORICAL FINANCIAL DATA.. 27 UNAUDITED PRO FORMA FINANCIAL DATA.............................. 30 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................... 37

PAGE ---- BUSINESS............................ 54 MANAGEMENT.......................... 78 OWNERSHIP OF COMMON STOCK........... 88 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................... 91 COMMON STOCK ELIGIBLE FOR FUTURE SALE.............................. 94 DESCRIPTION OF CAPITAL STOCK........ 96 FEDERAL INCOME AND ESTATE TAX CONSIDERATIONS FOR NON-U.S. HOLDERS OF COMMON STOCK........... 99 UNDERWRITING........................ 102 NOTICE TO CANADIAN RESIDENTS........ 105 VALIDITY OF COMMON STOCK............ 106 EXPERTS............................. 106 WHERE YOU CAN FIND MORE INFORMATION....................... 106

-------------- YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE ON THE DATE OF THIS DOCUMENT. DEALER PROSPECTUS DELIVERY OBLIGATION UNTIL , 2002 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. SUMMARY THIS SUMMARY HIGHLIGHTS INFORMATION ABOUT SAFETY INSURANCE GROUP, INC. AND THE OFFERING. IN THIS PROSPECTUS, "SAFETY GROUP" REFERS TO SAFETY INSURANCE GROUP, INC. AND "SAFETY," "OUR COMPANY," "WE" AND "OUR" REFER TO SAFETY INSURANCE GROUP, INC. AND ITS CONSOLIDATED SUBSIDIARIES. BECAUSE THIS IS A SUMMARY, IT MAY NOT CONTAIN ALL THE INFORMATION YOU SHOULD CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD CAREFULLY READ THIS ENTIRE PROSPECTUS. SAFETY INSURANCE GROUP, INC. OUR BUSINESS We are a leading provider of private passenger automobile insurance in Massachusetts. In addition to private passenger automobile insurance (which represented 83.1% of our direct written premiums in 2001), we offer a portfolio of property and casualty insurance products, including commercial automobile (9.0% of 2001 direct written premiums), homeowners (6.8% of 2001 direct written premiums), dwelling fire, umbrella and business owner policies. Operating exclusively in Massachusetts through our insurance company subsidiaries, Safety Insurance Company, or Safety Insurance, and Safety Indemnity Insurance Company, we have established strong relationships with approximately 500 independent insurance agents in approximately 600 locations throughout Massachusetts. We have used these relationships and our extensive knowledge of the Massachusetts market to become the third largest private passenger insurance carrier in Massachusetts, capturing approximately a 10.4% share of the Massachusetts private passenger automobile insurance market in 2001, according to statistics compiled by Commonwealth Automobile Reinsurers, or CAR, a state-established body which runs the residual market reinsurance programs for private passenger automobile insurance in Massachusetts. These statistics total, for each vehicle insured, the number of months during the year insurance for that vehicle is in effect, to arrive at an aggregate number of car-months for each insurer; this aggregate number, divided by 12, equals the insurer's number of car-years, a measure we refer to in this prospectus as automobile exposures. We have been profitable in every year since our founding in 1979, notwithstanding changing market conditions during that time. Since 1997, we have increased our direct written premiums by 73%, from $272.5 million to $471.9 million in 2001. We have achieved this growth by increasing our share of the Massachusetts private passenger automobile insurance market from 7.6% to 10.4% over the same time period and by expanding our product offerings. We have maintained our profitability during this period in part by managing our cost structure through, for example, the use of technology. Over the same period, our insurance subsidiaries have maintained an "A" rating from A.M. Best Company. Although private passenger automobile insurance remains our primary product, its overall share of our direct written premiums has declined from 88.1% in 1999 to 83.1% in 2001 while overall private passenger auto premiums increased from $307.6 million to $392.3 million over the same period. The primary reason for the decline in the overall share of our direct written premiums from private passenger automobile insurance has been an increase in direct written premiums from other products or the introduction of new products. For example, over the same period, commercial automobile insurance has increased from 7.2% to 9.0% of our direct written premiums, and homeowners insurance has increased from 4.4% to 6.8% of our direct written premiums. OUR COMPETITIVE STRENGTHS WE HAVE STRONG RELATIONSHIPS WITH INDEPENDENT AGENTS. In 2001, independent agents accounted for approximately 77% of the Massachusetts private passenger automobile insurance market measured by direct written premiums as compared to only about 34% nationwide, according to A.M. Best. For that reason, our strategy is centered around, and we sell exclusively through, a network of approximately 1 500 independent agents in approximately 600 locations throughout Massachusetts. In order to support our independent agents and enhance our relationships with them we: - Provide our agents with a portfolio of property and casualty insurance products at competitive prices to help our agents address effectively the insurance needs of their clients; - Provide our agents with a variety of technological resources which enable us to deliver superior service and support to them; and - Offer our agents competitive commission schedules and profit sharing programs. Through these measures, we strive to become the preferred provider of the independent agents in our agency network and capture a growing share of the total insurance business written by these agents. We must compete with other insurance carriers for the business of independent agents. Some of our competitors offer a larger variety of products, lower prices for insurance coverage or higher commissions. Nonetheless, we believe our mix of products, pricing, support and commissions allows us to compete effectively for agents' business in the current market environment. WE HAVE AN UNINTERRUPTED RECORD OF PROFITABLE OPERATIONS. In every year since our inception in 1979, we have been profitable and increased our direct written premiums from the prior year. We have achieved profitable growth over the past five years by, among other things: - Increasing the number of private passenger automobile exposures we underwrite from 287,000 in 1997 to 427,000 in 2001 and the average premium we receive per automobile exposure from $748 to $918; - Maintaining an adjusted statutory combined ratio that is consistently below industry averages, as shown below; - Taking advantage of the institutional knowledge our management has amassed during our long operating history in the unique Massachusetts market; - Introducing new lines of insurance products, such as homeowners, which unlike personal auto do not have state-established maximum premium rates; - Investing in technology, to simplify internal processes and enhance our relationships with our agents; and - Maintaining a high-quality investment portfolio. The following table shows, on a statutory accounting basis, our loss ratio, expense ratio and combined ratio as compared to the average for all property and casualty insurers nationwide. The combined ratio indicates the profitability of an insurer's underwriting. Although a combined ratio of 2 greater than 100% indicates unprofitable underwriting, the insurer may be profitable after including investment and fee income.

SIX MONTHS YEAR ENDED DECEMBER 31, ENDED ---------------------------------------------------------------- JUNE 30, RATIOS(1) 1997 1998 1999 2000 2001 2002 --------- -------- -------- -------- -------- -------- -------- Safety Loss ratio(2)................................ 74.0% 75.3% 74.9% 72.3% 78.8% 76.2% Expense ratio................................ 30.6 29.9 29.0 28.2 26.1 23.9 ----- ----- ----- ----- ----- ------ Combined ratio............................... 104.6% 105.2% 103.9% 100.5% 104.9% 100.1% Property and casualty industry Loss ratio................................... 73.0%(4) 76.5%(4) 78.8%(4) 81.4%(4) 89.3(4) (5) Expense ratio(3)............................. 28.8(4) 29.5(4) 29.3(4) 28.9(4) 26.6(4) (5) ----- ----- ----- ----- ----- ------ Combined ratio............................... 101.8%(4) 106.0%(4) 108.1%(4) 110.3%(4) 115.9%(4) 105.1%(6)

------------------------------ (1) The loss ratio is the ratio of losses and loss adjustment expenses to net earned premiums. The expense ratio, when calculated on a statutory accounting basis, is the ratio of underwriting expenses to net written premiums. The combined ratio is the sum of the loss ratio and the expense ratio. (2) Our loss ratios and expense ratios for the years 1997 through 2000 have been restated from amounts previously reported in our filings with state regulators to conform to a change in how we began to present our residual automobile market participation for statutory accounting purposes effective as of January 1, 2001, as explained in footnote 1 to the table in "Management's Discussion and Analysis of Financial Condition and Results of Operations--General--Insurance Ratios." See "Summary Historical Financial Data" for a presentation of our ratios as originally reported. Our expense ratios include certain compensation and interest costs charged to our insurance subsidiaries under our prior majority owner, which are also described in that footnote. If these costs were excluded from our expense ratios, our adjusted expense and combined ratios, respectively, would have been 25.8% and 99.8% for 1997, 25.6% and 100.9% for 1998, 25.4% and 100.3% for 1999, 25.2% and 97.5% for 2000 and 24.8% and 103.6% for 2001. (3) For property and casualty industry data, the expense ratios include dividends to policyholders. (4) Source: A.M. Best, AGGREGATES & AVERAGES, 2002 Edition. (5) Property and casualty industry loss and expense ratios for the six months ended June 30, 2002 are not yet available. (6) Source: A.M. Best Statistical Study, September 16, 2002. WE ARE A TECHNOLOGICAL LEADER. We have dedicated significant human and financial resources to the development of information systems. Our technology efforts have benefited us in two distinct ways. First, we continue to develop technology that empowers our independent agent customers to make it easier for them to transact business with their clients and with Safety. In our largest business line, private passenger auto insurance, our agents now submit approximately 92% of all applications for new policies or endorsements for existing policies to us electronically through our proprietary information portal, the Agents Virtual Community. Second, our investment in technology has allowed us to re-engineer internal back office processes to provide more efficient service at lower cost. Our adjusted statutory expense ratios have been below the average industry statutory expense ratio in each of the last five years, as shown above. Our systems have also improved our overall productivity, as evidenced by our direct written premiums per employee increasing to $928,870 in 2001 from $612,348 in 1997. WE HAVE AN EXPERIENCED, COMMITTED AND KNOWLEDGEABLE MANAGEMENT TEAM. Following this offering, our executive management team will own approximately 12% of our common stock on a fully diluted basis. The executive management team, led by our Chief Executive Officer and President David F. Brussard, has an average of over 25 years of industry experience per executive, as well as an average of over 20 years of experience with Safety. The team has demonstrated an ability to operate successfully within the regulated Massachusetts private passenger automobile insurance market. 3 OUR STRATEGY To achieve our goal of increasing stockholder value, our strategy is to maintain and develop strong relationships with independent agents by providing our agents with a full package of insurance products and information technology services. We believe this strategy will allow us to: - Further penetrate the Massachusetts private passenger automobile insurance market; - Continue to selectively cross-sell homeowners, dwelling fire, personal umbrella and business owner policies in order to capture a larger share of selected Massachusetts property and casualty insurance business written by each of our independent agents; - Continue to expand our technology to enable independent agents to more easily serve their customers and conduct business with Safety, thereby strengthening their relationships with Safety; and - If opportunities arise, selectively expand our business outside the Massachusetts market into other markets with strong independent agent distribution channels, where we can capitalize on our core strength of serving independent agents. CERTAIN RISKS OF OUR STRATEGY Our ability to capitalize on our business strengths and implement our strategies entails risks. For example, our exclusive focus on the Massachusetts market means that, unlike most other insurers, we have no operations in other states that could offset unfavorable changes in regulatory, economic, demographic, competitive or other conditions in Massachusetts. Unlike in other states, in Massachusetts the insurance commissioner sets the maximum premium rates that insurers may charge for private passenger auto insurance. In three of the last five years, Massachusetts has mandated a decrease, or no increase, in average rates, and in the two other years, the permitted rate increase has been negligible. Although in the future we may attempt to selectively expand our business outside Massachusetts, we may not have an opportunity to do so successfully. Despite our exclusive focus on Massachusetts, we believe our detailed knowledge of the Massachusetts market allows us to operate effectively within its unique regulatory framework. For further discussion of these and other risks we face, see "Risk Factors." RECENT HISTORY AND ACQUISITION Safety Insurance was founded in 1979 and wrote exclusively auto insurance until 1997. In October 2001, senior management of Safety Insurance, together with certain investors, purchased the holding company for Safety Insurance and its affiliates from the prior owners. This purchase, which we refer to in this prospectus as the Acquisition, was financed with a combination of bank debt and the issuance of senior subordinated notes, redeemable preferred stock and common stock of Safety Group, which was formed in 2001 to make the Acquisition. Concurrently with this offering, all of our outstanding redeemable preferred shares will convert into shares of our common stock, valued at the initial offering price, an event we refer to in this prospectus as the Preferred Share Exchange. We have agreed to sell directly to Fairholme Partners, L.P., one of our existing stockholders, on a non-underwritten basis 350,000 shares of our common stock at the initial public offering price, a transaction which we refer to as the Direct Sale. After the offering, the Preferred Share Exchange and the Direct Sale, Fairholme Partners, L.P. will hold 1,191,982 shares of our common stock, representing 8.6% of our outstanding common stock on a fully-diluted basis. The Direct Sale will be consummated at the same time as this offering. The consummation of the Direct Sale is not a condition to the consummation of this offering. We will use proceeds from this offering and the Direct Sale, together with borrowings under a new bank credit facility, to repay our existing bank loans and thereby reduce our level of debt and to pay accrued dividends on our preferred stock. We believe that this offering, the Direct Sale, our new bank credit facility and the Preferred Share Exchange will improve our financial flexibility and enhance our overall ability to grow our business. See "The Acquisition." ------------------------ Our principal executive offices are located at 20 Custom House Street, Boston, MA 02110. Our telephone number is (617) 951-0600. 4 THE OFFERING(1) Common Shares Offered in the Offering........ 6,000,000 Shares Common Shares Offered in the Direct Sale..... 350,000 Shares Common Shares to be Outstanding after the Offering and the Direct Sale(2)............ 13,819,257 Shares NASDAQ Symbol................................ SAFT Use of Proceeds.............................. We will receive net proceeds from the initial public offering and the Direct Sale of approximately $77.6 million, or $88.9 million if the underwriters exercise in full their option to purchase additional shares. We intend to use the proceeds from the offering and the Direct Sale, together with approximately $25.1 million in borrowings under a new bank credit facility, assuming the underwriters do not exercise their over-allotment option, to repay an aggregate of $96.6 million of indebtedness and accrued interest and pay $1.4 million in accrued dividends on our outstanding preferred stock (in each case, assuming the payments occur on October 31, 2002), with any remaining net proceeds to be used for our general corporate purposes. Dividend Policy.............................. Our board of directors currently intends to declare an annual dividend on our common stock of $0.28 per share. For more information on dividends, including potential limitations on our ability to pay them, see "Dividend Policy." ------------------------ (1) Prior to completing this offering, we will declare a stock split in the form of a dividend of shares of our common stock to our existing stockholders. This prospectus presents all share and per share data for periods following the Acquisition as if this stock dividend had already occurred. (2) Includes 1,659,257 shares assumed issued in connection with the Preferred Share Exchange (assuming an initial public offering price of $13.50 per share). Includes 350,000 shares assumed sold in connection with the Direct Sale upon consummation of this offering. Excludes 379,000 shares that are subject to employee stock options to be granted effective as of the closing of this offering, none of which may be exercised within 60 days after the date of this offering. 5 SUMMARY HISTORICAL FINANCIAL DATA The following table sets forth our summary historical consolidated financial data as of and for each of the five years ended December 31, 2001 and as of and for the six months ended June 30, 2001 and 2002. Prior to October 16, 2001, Thomas Black Corporation was the parent company of Safety Insurance. In the columns below and throughout this prospectus, we refer to the period before the Acquisition, between January 1 and October 15, 2001, as the predecessor period. In the Acquisition, on October 16, 2001 Safety Group became the parent company of Thomas Black Corporation. We refer to the period after the Acquisition, between October 16 and December 31, 2001, as the successor period. The summary historical consolidated financial data for the predecessor period January 1, 2001 to October 15, 2001 and the successor period October 16, 2001 to December 31, 2001, and as of December 31, 2001 have been derived from the financial statements of Safety Group and Thomas Black Corporation included in this prospectus which have been audited by PricewaterhouseCoopers LLP, independent accountants. The summary historical consolidated financial data for the years ended December 31, 1999 and 2000 and as of December 31, 2000 have been derived from Thomas Black Corporation's financial statements included in this prospectus which have been audited by PricewaterhouseCoopers LLP. The summary historical consolidated financial data for the years ended December 31, 1997 and 1998 and as of December 31, 1997, 1998 and 1999 have been derived from Thomas Black Corporation's consolidated financial statements not included in this prospectus, which have been audited by PricewaterhouseCoopers LLP. As a result of the Acquisition, financial data for periods prior to the Acquisition may not be comparable with financial data for periods following the Acquisition. The summary historical consolidated income statement data for the six months ended June 30, 2001 and 2002 and the summary historical consolidated balance sheet data as of June 30, 2002 have been derived from our unaudited interim condensed consolidated financial statements included in this prospectus. The summary historical consolidated balance sheet data as of June 30, 2001 have been derived from our unaudited interim condensed balance sheet data not included in this prospectus. We have prepared the summary historical consolidated financial data, other than statutory data, in conformity with accounting principles generally accepted in the United States of America, or GAAP. We have derived the statutory data from the annual statements of our insurance subsidiaries filed with insurance regulatory authorities, which were prepared in accordance with statutory accounting practices, which vary in certain respects from GAAP. The following is a summary and should be read in conjunction with "Selected Historical Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and the accompanying notes included in this prospectus in order to more fully understand our historical consolidated financial data. 6

PREDECESSOR YEAR ENDED DECEMBER 31, ------------------------------------------------- 1997 1998 1999 2000 ---------- ---------- ---------- ---------- ($ IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA) INCOME STATEMENT DATA: Direct written premiums..... $ 272,495 $ 287,507 $ 349,206 $ 427,457 Net written premiums........ 243,688 259,153 330,961 430,030 Net earned premiums......... 242,760 246,507 300,020 381,413 Investment income........... 22,349 22,965 23,870 26,889 Net realized investment gains (losses)............ 8,551 10,119 8,102 (1,246) Finance and other service income.................... 6,222 9,343 10,989 12,656 ---------- ---------- ---------- ---------- Total income.............. 279,882 288,934 342,981 419,712 Losses and loss adjustment expenses.................. 180,643 188,913 225,241 275,138 Underwriting, operating and related expenses.......... 78,261 76,115 91,357 115,567 Transaction expenses(2)..... -- -- -- 406 Interest expense............ 2,040 1,716 1,418 1,072 ---------- ---------- ---------- ---------- Total expenses............ 260,944 266,744 318,016 392,183 Income (loss) before income taxes..................... 18,938 22,190 24,965 27,529 Income tax expense.......... 5,688 7,778 8,667 8,255 ---------- ---------- ---------- ---------- Net income (loss) before extraordinary item and preferred stock dividends................. 13,250 14,412 16,298 19,274 Excess of fair value of acquired net assets over purchase price............ -- -- -- -- ---------- ---------- ---------- ---------- Net income before preferred stock dividends........... $ 13,250 $ 14,412 $ 16,298 $ 19,274 Dividends on mandatorily redeemable preferred stock..................... -- -- -- -- ---------- ---------- ---------- ---------- Net income available to common stockholders....... $ 13,250 $ 14,412 $ 16,298 $ 19,274 ========== ========== ========== ========== Net income (loss) per common share before extraordinary item Basic..................... $ 17.77 $ 18.47 $ 19.95 $ 22.50 ========== ========== ========== ========== Diluted................... $ 17.77 $ 18.47 $ 19.95 $ 22.50 ========== ========== ========== ========== Extraordinary item per common share Basic..................... $ -- $ -- $ -- $ -- ========== ========== ========== ========== Diluted................... $ -- $ -- $ -- $ -- ========== ========== ========== ========== Net income per common share Basic..................... $ 17.77 $ 18.47 $ 19.95 $ 22.50 ========== ========== ========== ========== Diluted................... $ 17.77 $ 18.47 $ 19.95 $ 22.50 ========== ========== ========== ========== Weighted average number of common shares outstanding Basic..................... 745,800 780,300 816,800 856,800 ========== ========== ========== ========== Diluted................... 745,800 780,300 816,800 856,800 ========== ========== ========== ==========

PREDECESSOR SUCCESSOR PREDECESSOR SUCCESSOR PERIOD PERIOD ----------- ---------- ----------- ------------ SIX MONTHS ENDED JANUARY 1- OCTOBER 16- JUNE 30, OCTOBER 15, DECEMBER 31, ------------------------ 2001(1) 2001(1) 2001 2002 ----------- ------------ ----------- ---------- ($ IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA) INCOME STATEMENT DATA: Direct written premiums..... $ 391,628 $ 80,238 $ 259,918 $ 283,382 Net written premiums........ 382,486 82,980 256,322 285,355 Net earned premiums......... 347,098 100,175 218,013 241,420 Investment income........... 22,246 5,359 13,979 13,659 Net realized investment gains (losses)............ (766) (4,284) (591) (2,388) Finance and other service income.................... 10,559 2,950 6,589 8,024 ---------- ---------- ---------- ---------- Total income.............. 379,137 104,200 237,990 260,715 Losses and loss adjustment expenses.................. 276,383 75,559 172,433 182,926 Underwriting, operating and related expenses.......... 89,297 30,212 58,568 65,645 Transaction expenses(2)..... 5,605 3,874 109 -- Interest expense............ 550 1,823 387 4,151 ---------- ---------- ---------- ---------- Total expenses............ 371,835 111,468 231,497 252,722 Income (loss) before income taxes..................... 7,302 (7,268) 6,493 7,993 Income tax expense.......... 1,678 (1,666) 2,143 2,524 ---------- ---------- ---------- ---------- Net income (loss) before extraordinary item and preferred stock dividends................. 5,624 (5,602) 4,350 5,469 Excess of fair value of acquired net assets over purchase price............ -- 117,523 -- -- ---------- ---------- ---------- ---------- Net income before preferred stock dividends........... $ 5,624 $ 111,921 $ 4,350 $ 5,469 Dividends on mandatorily redeemable preferred stock..................... -- (280) -- (672) ---------- ---------- ---------- ---------- Net income available to common stockholders....... $ 5,624 $ 111,641 $ 4,350 $ 4,797 ========== ========== ========== ========== Net income (loss) per common share before extraordinary item Basic..................... $ 6.26 $ (1.07) $ 4.88 $ 0.87 ========== ========== ========== ========== Diluted................... $ 6.26 $ (1.07) $ 4.88 $ 0.83 ========== ========== ========== ========== Extraordinary item per common share Basic..................... $ -- $ 21.29 $ -- $ -- ========== ========== ========== ========== Diluted................... $ -- $ 21.29 $ -- $ -- ========== ========== ========== ========== Net income per common share Basic..................... $ 6.26 $ 20.23 $ 4.88 $ 0.87 ========== ========== ========== ========== Diluted................... $ 6.26 $ 20.23 $ 4.88 $ 0.83 ========== ========== ========== ========== Weighted average number of common shares outstanding Basic..................... 898,300 5,519,500 891,300 5,519,500 ========== ========== ========== ========== Diluted................... 898,300 5,810,000 891,300 5,810,000 ========== ========== ========== ==========

7

SUCCESSOR PREDECESSOR ------------- PREDECESSOR SUCCESSOR ----------------------------------------- AS OF AND FOR ------------ ------------ AS OF AND FOR THE YEAR ENDED THE YEAR AS OF AND FOR THE SIX DECEMBER 31, ENDED MONTHS ENDED JUNE 30, ----------------------------------------- DECEMBER 31, --------------------------- 1997 1998 1999 2000 2001(1) 2001 2002 -------- -------- -------- -------- ------------- ------------ ------------ ($ IN THOUSANDS, EXCEPT RATIOS) BALANCE SHEET DATA: Total cash & investments........ $404,702 $434,356 $447,836 $505,006 $529,286 $507,083 $516,885 Total assets.................... 717,400 734,647 770,009 833,339 859,174 836,769 920,256 Losses and loss adjustment expenses reserves............. 319,453 311,846 315,226 302,131 302,556 302,140 309,351 Total debt...................... 27,000 22,500 18,000 13,383 99,500 7,964 98,500 Total liabilities............... 567,537 563,499 594,905 620,388 727,512 616,948 777,786 Mandatorily redeemable preferred stock......................... -- -- -- -- 22,680 -- 23,352 Total stockholders' equity...... 149,863 171,148 175,105 212,951 108,982 219,821 119,118 STATUTORY DATA: Policyholders' surplus (at period end)................... $163,566 $179,926 $185,529 $192,577 $220,081 $207,370 $221,224 Loss ratio(3)................... 76.0% 77.1% 76.1% 73.5% 78.8% 79.2% 76.2% Expense ratio(3)................ 29.9 29.1 28.6 27.3 25.0 23.6 23.9 -------- -------- -------- -------- -------- -------- -------- Combined ratio(3)............... 105.9% 106.2% 104.7% 100.8% 103.8% 102.8% 100.1% ======== ======== ======== ======== ======== ======== ========

------------------------------ (1) In this financial presentation, the financial data for 2001 has been split into a predecessor period from January 1, 2001 to October 15, 2001 and a successor period from October 16, 2001 to December 31, 2001. (2) Our transaction expenses reflect the costs we incurred in connection with the Acquisition. See "The Acquisition." (3) The loss ratio is the ratio of losses and loss adjustment expenses to net earned premiums. The expense ratio, when calculated on a statutory accounting basis, is the ratio of underwriting expenses to net written premiums. The combined ratio is the sum of the loss ratio and the expense ratio. Our expense ratios and combined ratios shown include certain compensation and interest expenses charged to our insurance subsidiaries under our prior majority owner which are described in footnote 1 to the table shown under "Management's Discussion and Analysis of Financial Condition and Results of Operations--General--Insurance Ratios." 8 RECENT DEVELOPMENTS The following table sets forth certain unaudited financial data as of and for the nine months ended September 30, 2001 and 2002.

PREDECESSOR SUCCESSOR ----------- --------- NINE MONTHS ENDED SEPTEMBER 30, ----------------------- 2001 2002 ----------- --------- ($ IN THOUSANDS) INCOME STATEMENT DATA: Direct written premiums..................................... $374,666 $409,597 Net written premiums........................................ 365,947 410,168 Net earned premiums......................................... 328,719 363,763 Investment income........................................... 21,000 19,719 Net realized investment losses.............................. (766) (968) Finance and other service income............................ 9,982 12,012 -------- -------- Total income.............................................. 358,935 394,526 Losses and loss adjustment expenses......................... 261,320 276,761 Underwriting, operating and related expenses(1)............. 86,384 98,946 Transaction expenses(2)..................................... 850 -- Interest expense............................................ 534 6,075 -------- -------- Total expenses............................................ 349,088 381,782 Income before income taxes.................................. $ 9,847 $ 12,744 Income tax expense.......................................... 2,234 3,555 -------- -------- Net income before preferred stock dividends................. $ 7,613 $ 9,189 Dividends on mandatorily redeemable preferred stock......... -- (1,008) -------- -------- Net income available to common stockholders................. $ 7,613 $ 8,181 ======== ========

AS OF SEPTEMBER 30, ------------------- 2001 2002 -------- -------- BALANCE SHEET DATA: Total cash & investments.................................... $534,522 $595,463 Total assets................................................ 870,527 950,464 Losses and loss adjustment expenses reserves................ 306,277 326,608 Total debt.................................................. 7,964 96,500 Total liabilities........................................... 640,378 790,413 Mandatorily redeemable preferred stock...................... -- 23,688 Total stockholders' equity.................................. 230,149 136,363

------------------------ (1) Includes $0.8 million of TJC Management fee expense and $4.5 million of put and call options compensation expense on shares held by management for the nine months ended September 30, 2002. (2) Our transaction expenses reflect the costs we incurred in connection with the Acquisition. See "The Acquisition." 9 SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA We have derived the following summary unaudited pro forma financial data from the pro forma financial data and the accompanying notes included elsewhere in this prospectus. See "Unaudited Pro Forma Financial Data." The following data give effect to the initial public offering, the Direct Sale and the Preferred Share Exchange as if they had occurred as of June 30, 2002 for purposes of the unaudited pro forma condensed consolidated balance sheet, and to the Acquisition, the initial public offering, the Direct Sale, the replacement of our existing credit facility with our new credit facility and the Preferred Share Exchange as if they had occurred as of January 1, 2001 for purposes of the unaudited pro forma condensed consolidated income statement for the year ended December 31, 2001 and the six months ended June 30, 2002. We have prepared these unaudited pro forma data based on the assumptions described in "Unaudited Pro Forma Financial Data." THE UNAUDITED PRO FORMA DATA ARE BASED ON AVAILABLE INFORMATION AND ON ASSUMPTIONS WE BELIEVE ARE REASONABLE. THE UNAUDITED PRO FORMA DATA SHOULD NOT BE CONSTRUED TO BE INDICATIVE OF OUR CONSOLIDATED FINANCIAL POSITION OR OUR CONSOLIDATED RESULTS OF OPERATIONS HAD THESE TRANSACTIONS BEEN CONSUMMATED ON THE DATES ASSUMED, AND DO NOT IN ANY WAY REPRESENT A PROJECTION OR FORECAST OF OUR CONSOLIDATED FINANCIAL POSITION OR CONSOLIDATED RESULTS OF OPERATIONS FOR OR AS OF ANY FUTURE PERIOD OR DATE. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 2002 ($ IN THOUSANDS)

UNAUDITED PRO FORMA, AS ADJUSTED ----------- ASSETS: Cash and investments........................................ $524,070 Accounts receivable......................................... 133,742 Reinsurance recoverables.................................... 92,079 Deferred policy acquisition costs........................... 38,213 Deferred income taxes....................................... 17,307 Other assets................................................ 120,387 -------- Total assets.............................................. $925,798 ======== LIABILITIES: Loss and loss adjustment expense reserves................... 309,351 Unearned premium reserves................................... 286,447 Debt........................................................ 27,980 Other liabilities........................................... 83,364 -------- Total liabilities......................................... 707,142 -------- STOCKHOLDERS' EQUITY: Common stock................................................ 139 Additional paid-in capital.................................. 106,534 Accumulated other comprehensive income, net of taxes........ 900 Promissory notes receivable from management................. (720) Retained earnings........................................... 111,803 -------- Total stockholders' equity................................ 218,656 -------- Total liabilities and stockholders' equity.................. $925,798 ========

10 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2001 ($ IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)

UNAUDITED PRO FORMA, AS ADJUSTED ----------- Net earned premiums......................................... $ 447,273 Investment income........................................... 26,302 Net realized investment losses.............................. (5,050) Finance and other service income............................ 13,509 ----------- Total income.............................................. 482,034 ----------- Losses and loss adjustment expenses......................... 351,942 Underwriting, operating and related expenses................ 116,755 Transaction expenses........................................ 3,874 Interest expense............................................ 1,529 ----------- Total expenses............................................ 474,100 ----------- Income before income taxes.................................. 7,934 Income tax expense.......................................... 816 ----------- Net income before extraordinary item available to common stockholders.............................................. $ 7,118 =========== Earnings per common share Basic..................................................... $ 0.52 =========== Diluted................................................... $ 0.52 =========== Weighted average number of common shares outstanding Basic..................................................... 13,819,257 =========== Diluted................................................... 13,819,257 ===========

11 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT FOR THE SIX MONTHS ENDED JUNE 30, 2002 ($ IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)

UNAUDITED PRO FORMA, AS ADJUSTED ----------- Net earned premiums......................................... $ 241,420 Investment income........................................... 13,659 Net realized investment losses.............................. (2,388) Finance and other service income............................ 8,024 ----------- Total income.............................................. 260,715 ----------- Losses and loss adjustment expenses......................... 182,926 Underwriting, operating and related expenses................ 62,094 Interest expense............................................ 490 ----------- Total expenses............................................ 245,510 ----------- Income before income taxes.................................. 15,206 Income tax expense.......................................... 5,049 ----------- Net income available to common stockholders................. $ 10,157 =========== Earnings per common share: Basic..................................................... $ 0.73 =========== Diluted................................................... $ 0.73 =========== Weighted average number of common shares outstanding Basic..................................................... 13,819,257 =========== Diluted................................................... 13,819,257 ===========

12 RISK FACTORS AN INVESTMENT IN OUR COMMON STOCK INVOLVES A NUMBER OF RISKS. YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING INFORMATION ABOUT THESE RISKS, TOGETHER WITH THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, BEFORE INVESTING IN SHARES OF OUR COMMON STOCK. ANY OF THE RISKS DESCRIBED BELOW COULD RESULT IN A SIGNIFICANT OR MATERIAL ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS OR FINANCIAL CONDITION, AND A CORRESPONDING DECLINE IN THE MARKET PRICE OF OUR COMMON STOCK. BECAUSE WE ARE PRIMARILY A PRIVATE PASSENGER AUTOMOBILE INSURANCE CARRIER, OUR BUSINESS MAY BE ADVERSELY AFFECTED BY CONDITIONS IN THIS INDUSTRY. Approximately 83% of our direct written premiums for the year ended December 31, 2001 were generated from private passenger automobile insurance policies. As a result of our focus on that line of business, negative developments in the economic, competitive or regulatory conditions affecting the private passenger automobile insurance industry could have a material adverse effect on our results of operations and financial condition. In addition, these developments would have a disproportionate effect on us, compared to insurers which conduct operations in multiple business lines. BECAUSE WE WRITE INSURANCE ONLY IN MASSACHUSETTS, OUR BUSINESS MAY BE ADVERSELY AFFECTED BY CONDITIONS IN MASSACHUSETTS. All of our direct written premiums are generated in Massachusetts. Our revenues and profitability are therefore subject to prevailing regulatory, economic, demographic, competitive and other conditions in Massachusetts. Changes in any of these conditions could make it more costly or difficult for us to conduct our business. Adverse regulatory developments in Massachusetts, which could include, among others, reductions in the maximum rates permitted to be charged, inadequate rate increases or more fundamental changes in the design or implementation of the Massachusetts automobile insurance regulatory framework, could have a material adverse effect on our results of operations and financial condition. In addition, these developments would have a disproportionate effect on us, compared to insurers which conduct operations in multiple states. WE HAVE EXPOSURE TO CLAIMS RELATED TO SEVERE WEATHER CONDITIONS, WHICH MAY RESULT IN AN INCREASE IN CLAIMS FREQUENCY AND SEVERITY. We are subject to claims arising out of severe weather conditions, such as rainstorms, snowstorms and ice storms, that may have a significant effect on our results of operations and financial condition. The incidence and severity of weather conditions are inherently unpredictable. There is generally an increase in claims frequency and severity under the private passenger automobile insurance we write when severe weather occurs because a higher incidence of vehicular accidents and other insured losses tend to occur as a result of severe weather conditions. In addition, we have exposure to an increase in claims frequency and severity under the homeowners and other property insurance we write because property damage may result from severe weather conditions. Because some of our insureds live near the Massachusetts coastline, we also have a potential exposure to losses from hurricanes and major coastal storms such as Nor'easters. Although we purchase catastrophe reinsurance to limit our exposure to these types of natural catastrophes, in the event of a major catastrophe resulting in property losses to us in excess of $100.0 million, our losses would exceed the limits of this reinsurance. IF WE ARE NOT ABLE TO ATTRACT AND RETAIN INDEPENDENT AGENTS, IT COULD ADVERSELY AFFECT OUR BUSINESS. We market our insurance solely through independent agents. We must compete with other insurance carriers for the business of independent agents. Some of our competitors offer a larger variety of products, lower prices for insurance coverage or higher commissions. While we believe that the commissions and services we provide to our agents are competitive with other insurers, changes in commissions, services or products offered by our competitors could make it harder for us to attract and retain independent agents to sell our insurance products. 13 ESTABLISHED COMPETITORS WITH GREATER RESOURCES MAY MAKE IT DIFFICULT FOR US TO MARKET OUR PRODUCTS EFFECTIVELY AND OFFER OUR PRODUCTS AT A PROFIT. The property and casualty insurance business is highly competitive and many of our competitors have substantially greater financial and other resources than us. We compete with both large national writers and smaller regional companies. Further, our competitors include other companies which, like us, serve the independent agency market, as well as companies which sell insurance directly to customers. Direct writers may have certain competitive advantages over agency writers, including increased name recognition, loyalty of the customer base to the insurer rather than to an independent agency and, potentially, lower cost structures. A material reduction in the amount of business independent agents sell would directly and negatively affect our profitability and our ability to compete with insurers that do not rely solely on the independent agency market to sell their products. In the past, competition in the Massachusetts personal auto insurance market has included offering significant discounts from the maximum permitted rates, and there can be no assurance that these conditions will not recur. Further, our Company and others compete on the basis of the commissions and other cash and non-cash incentives provided to agents. Although a number of national insurers that are much larger than we are do not currently compete in a material way in the Massachusetts personal auto market, if one or more of these companies decided to aggressively enter the market it could reduce our share of the Massachusetts market and thereby have a material adverse effect on us. These companies include some that would be able to sustain significant losses in order to acquire market share, as well as others which use distribution methods that compete with the independent agent channel. WE ARE CONTROLLED BY PRINCIPAL STOCKHOLDERS THAT HAVE THE ABILITY TO EXERT SIGNIFICANT INFLUENCE OVER OUR OPERATIONS, INCLUDING CONTROLLING THE ELECTION OF DIRECTORS. Prior to this offering, our principal stockholders were certain investors assembled by The Jordan Company LLC, the investment firm that sponsored the Acquisition, which beneficially owned directly or indirectly, on a fully diluted basis, 72.2% of our common stock. This group of investors includes JZ Equity Partners plc, a publicly-traded investment trust listed on the London Stock Exchange with an independent board of directors whose investment advisor is affiliated with The Jordan Company, as well as Fairholme Partners, L.P., which will consummate a purchase of 350,000 shares of our common stock simultaneously with this offering. See "The Direct Sale." We refer to this group of investors in this prospectus as the Investors. See "The Acquisition." After this offering, the Direct Sale and the Preferred Share Exchange, the Investors will beneficially own directly or indirectly, on a fully diluted basis, approximately 45% of our common stock. In addition, after the offering, the Direct Sale and the Preferred Share Exchange, David F. Brussard, our Chief Executive Officer and President, and the six other members of our executive management team (including all of the Named Executive Officers described in "Management"), will collectively own approximately 12% of our outstanding common stock on a fully-diluted basis. We refer to this group of seven officers in this prospectus as our Management Team. Until such time as the Investors and our Management Team sell or dispose of the common stock held by them, they would have the ability, if they were to vote together, to exert significant influence over our policies and affairs. If they were to act together, the Investors and our Management Team would have the power to elect our board of directors, appoint new management and approve any action requiring stockholder vote, including amendments to our Certificate of Incorporation and approving mergers or sales of substantially all of our assets. The interests of the Investors and our Management Team may differ from the interests of other stockholders. See "Certain Relationships and Related Transactions." AS A HOLDING COMPANY, SAFETY GROUP IS DEPENDENT ON THE RESULTS OF OPERATIONS OF SAFETY INSURANCE. Safety Group is a company and a legal entity separate and distinct from Safety Insurance, our principal operating subsidiary, which is directly owned by Thomas Black Corporation, an intermediate holding company and the primary borrower under our existing credit facility. As a holding company without significant operations of its own, the principal sources of Safety Group's funds are dividends 14 and other distributions from Thomas Black Corporation. In turn, Thomas Black Corporation's principal sources of funds are dividends and other distributions from Safety Insurance. Our rights, and consequently your rights as stockholders, to participate in any distribution of assets of Safety Insurance are subject to prior claims of policyholders, creditors and preferred stockholders, if any, of Safety Insurance and Thomas Black Corporation (except to the extent that our rights, if any, as a creditor are recognized). Consequently, our ability to pay debts, expenses and cash dividends to our stockholders may be limited. The ability of Safety Insurance to pay dividends is subject to limits under Massachusetts insurance law. Further, the ability of Thomas Black Corporation to pay dividends, and our subsidiaries' ability to incur indebtedness or to use the proceeds of equity offerings, will be subject to limits under our new credit facility. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." WE ARE SUBJECT TO COMPREHENSIVE REGULATION BY MASSACHUSETTS AND OUR ABILITY TO EARN PROFITS MAY BE RESTRICTED BY THESE REGULATIONS. GENERAL REGULATION. We are subject to regulation by government agencies in Massachusetts, and we must obtain prior approval for certain corporate actions. We must comply with regulations involving: - transactions between an insurance company and any of its affiliates; - the payment of dividends; - the acquisition of an insurance company or of any company controlling an insurance company; - approval or filing of premium rates and policy forms; - solvency standards; - minimum amounts of capital and surplus which must be maintained; - limitations on types and amounts of investments; - restrictions on the size of risks which may be insured by a single company; - limitation of the right to cancel or non-renew policies in some lines; - regulation of the right to withdraw from markets or terminate involvement with agencies; - requirements to participate in residual markets; - licensing of insurers and agents; - deposits of securities for the benefit of policyholders; and - reporting with respect to financial condition. In addition, insurance department examiners from Massachusetts perform periodic financial and market conduct examinations of insurance companies. Such regulation is generally intended for the protection of policyholders rather than security holders. Massachusetts requires that all licensed property and casualty insurers bear a portion of the losses suffered by some insureds as a result of impaired or insolvent insurance companies. In 1999, 2000 and 2001, we were assessed $0, $5.2 million and $1.4 million, respectively, as our portion of these losses due to the insolvencies of The Trust Insurance Company, Reliance Insurance Company and New England Fidelity. As of October 28, 2002, we have been assessed $2.1 million as our portion of the losses due to some of these insolvencies, as well as the insolvencies of other insurers. These assessments were made by the Massachusetts Insurers Insolvency Fund to cover the cost of paying eligible claims of policyholders of these insolvent insurers, and by CAR, to recover the shares of net CAR losses that would have been assessed to the insolvent companies but for their insolvencies. In addition, Massachusetts has established an underwriting association in order to ensure that property insurance is available for owners of high risk property who are not able to obtain insurance from private insurers. The losses of this underwriting association are shared by all insurers that write property and casualty 15 insurance in Massachusetts. We are assessed from time to time to pay these losses. The effect of these assessments could reduce our profitability in any given period and limit our ability to grow our business. Because we are unable to predict with certainty changes in the political, economic or regulatory environments in Massachusetts in the future, there can be no assurance that existing insurance-related laws and regulations will not become more restrictive in the future or that new restrictive laws will not be enacted and, therefore, it is not possible to predict the potential effects of these laws and regulations on us. See "Business--Regulation." MASSACHUSETTS PERSONAL AUTO REGULATION. We are subject to the extensive regulation of the private passenger automobile insurance industry in Massachusetts. Owners of registered automobiles are required to maintain minimum automobile insurance coverages. Generally, we are required by law to issue a policy to any applicant who seeks it. We are assigned certain agents that have been unable to obtain a voluntary contract with another insurer, on the basis of our market share. We call these agents Exclusive Representative Producers or ERPs. In addition, we are required to participate in a state-mandated reinsurance program run by CAR, to which we cede certain undesirable risks and from which we are allocated a portion of the program's overall losses. This program operates at an underwriting deficit and results in expense for us. Our ability to earn profits may be restricted by these requirements. Proposals to change certain of CAR's rules are under consideration. In a letter to the Massachusetts Insurance Commissioner (whom we refer to as the Commissioner) dated June 25, 2002, the Massachusetts Attorney General reported that his office has determined that CAR's current methodology for assigning ERPs and distributing the CAR deficit is not fair and equitable. The Attorney General's letter describes several factors that he believes support his findings and which he believes should be corrected in order to comply with Massachusetts law governing CAR. The Attorney General's letter calls on the Commissioner to work with him to address these issues. It is uncertain whether and to what extent the issues raised by the Attorney General will be addressed by CAR. We cannot be certain whether any changes, if adopted by CAR, would affect our profitability. Our marketing and underwriting strategies are limited by maximum premium rates and minimum agency commission levels for personal automobile insurance, which are mandated by the Commissioner. The Commissioner mandated an average 8.3% decrease in personal automobile premiums for 2001, as compared to an average rate increase of 0.7% in 2000. There is no change in personal automobile premium rates for 2002. During the period from 1996 through 1999, average premium rates decreased in three out of four years. Coinciding with the 2001 premium rate decrease, the Commissioner also approved an increase in the minimum commission rate agents receive for selling private passenger automobile insurance as a percentage of premiums, from 11.8% in 2000 to 12.3% in 2001. The Commissioner reduced commission rates to 11.7% in 2002. Premium rates are set following a proceeding in which the Commissioner considers historic information relating to claims costs as well as outside factors affecting insurance costs. If the information considered does not accurately predict the future benefit and expense costs of insurers, or if the Commissioner otherwise sets inadequate premium rates, our future profitability could be decreased. Future increases in commission rates would also decrease our profitability. WE MAY ENTER NEW MARKETS AND THERE CAN BE NO ASSURANCE THAT OUR DIVERSIFICATION STRATEGY WILL BE EFFECTIVE. Although we intend to concentrate on our core businesses in Massachusetts, we also may seek to take advantage of prudent opportunities to expand our core businesses into other states where we believe the independent agent distribution channel is strong. As a result of a number of factors, including the difficulties of finding appropriate expansion opportunities and the challenges of operating in an unfamiliar market, we may not be successful in this diversification. Additionally, in order to carry out any such strategy we would need to obtain the appropriate licenses from the insurance regulatory authority of any such state. Today, we do not possess any licenses outside of Massachusetts and we 16 could encounter unexpected regulatory obstacles that prevent us from obtaining these licenses in a timely fashion, or at all. OUR FAILURE TO MAINTAIN A COMMERCIALLY ACCEPTABLE FINANCIAL STRENGTH RATING WOULD SIGNIFICANTLY AND NEGATIVELY AFFECT OUR ABILITY TO IMPLEMENT OUR BUSINESS STRATEGY SUCCESSFULLY. A.M. Best has currently assigned Safety Insurance an "A (Excellent)" rating. An "A" rating is A.M. Best's third highest rating, out of 13 possible rating classifications for solvent companies. An "A" rating is assigned to insurers that in A.M. Best's opinion have a strong ability to meet their ongoing obligations to policyholders. Moreover, an "A" rating is assigned to companies that have, on balance, excellent balance sheet strength, operating performance and business profile when compared to the standards established by A.M. Best. A.M. Best bases its ratings on factors that concern policyholders and not upon factors concerning investor protection. Such ratings are subject to change and are not recommendations to buy, sell or hold securities. An important factor in an insurer's ability to compete effectively is its A.M. Best rating. Our A.M. Best rating is lower than those of some of our competitors. Any future decrease in our rating could affect our competitive position. See "Business--Ratings." OUR LOSSES AND LOSS ADJUSTMENT EXPENSES MAY EXCEED OUR RESERVES, WHICH COULD SIGNIFICANTLY AFFECT OUR BUSINESS. The reserves for losses and loss adjustment expenses that we have established are estimates of amounts needed to pay reported and unreported claims and related expenses based on facts and circumstances known to us as of the time we established the reserves. Reserves are based on historical claims information, industry statistics and other factors. The establishment of appropriate reserves is an inherently uncertain process. If our reserves are inadequate and are strengthened, we would have to treat the amount of such increase as a charge to our earnings in the period that the deficiency is recognized. As a result of these factors, there can be no assurance that our ultimate liability will not materially exceed our reserves and have a negative effect on our results of operations and financial condition. Due to the inherent uncertainty of estimating reserves, it has been necessary, and may over time continue to be necessary, to revise estimated future liabilities as reflected in our reserves for claims and policy expenses. The historic development of reserves for losses and loss adjustment expenses may not necessarily reflect future trends in the development of these amounts. Accordingly, it is not appropriate to extrapolate redundancies or deficiencies based on historical information. See "Business--Reserves." IF WE LOSE KEY PERSONNEL, OUR ABILITY TO IMPLEMENT OUR BUSINESS STRATEGY COULD BE DELAYED OR HINDERED. Our future success depends significantly upon the efforts of certain key management personnel, including David F. Brussard, our Chief Executive Officer and President. We maintain a $10.0 million key man life insurance policy on Mr. Brussard, the proceeds of which are payable to us, but do not maintain any key man insurance on any other executive. We have entered into employment agreements with Messrs. Brussard, Begley, Crimmins, Kerton, Krupa, Loranger and Patrick, the seven members of our Management Team. The loss of key personnel could prevent us from fully implementing our business strategy and could significantly and negatively affect our financial condition and results of operations. As we continue to grow, we will need to recruit and retain additional qualified management personnel, and our ability to do so will depend upon a number of factors, such as our results of operations and prospects and the level of competition then prevailing in the market for qualified personnel. See "Management--Directors and Officers." MARKET FLUCTUATIONS AND CHANGES IN INTEREST RATES CAN HAVE SIGNIFICANT AND NEGATIVE EFFECTS ON OUR INVESTMENT PORTFOLIO. Our results of operations depend in part on the performance of our invested assets. As of September 30, 2002, 98.2% of our investment portfolio was invested in debt securities and 1.8% in equity securities, which did not include any common equity securities. Certain risks are inherent in 17 connection with debt securities including loss upon default and price volatility in reaction to changes in interest rates and general market factors. See "Business--Investments." WE MAY NOT BE ABLE TO SUCCESSFULLY ALLEVIATE RISK THROUGH REINSURANCE ARRANGEMENTS WHICH COULD CAUSE US TO REDUCE OUR PREMIUMS WRITTEN IN CERTAIN LINES OR COULD RESULT IN LOSSES. In order to reduce risk and to increase our underwriting capacity, we purchase reinsurance. The availability and the cost of reinsurance protection is subject to market conditions, which are outside of our control. As a result, we may not be able to successfully alleviate risk through these arrangements. For example, if reinsurance capacity for homeowners risks were reduced as a result of terrorist attacks or other causes, we would seek to reduce the amount of homeowners business we write. In addition, we are subject to credit risk with respect to our reinsurance because the ceding of risk to reinsurers does not relieve us of our liability to our policyholders. A significant reinsurer's insolvency or inability to make payments under the terms of a reinsurance treaty could have a material adverse effect on our results of operations and financial condition. THERE ARE ANTI-TAKEOVER PROVISIONS CONTAINED IN OUR ORGANIZATIONAL DOCUMENTS AND IN LAWS OF THE STATE OF DELAWARE AND MASSACHUSETTS THAT COULD IMPEDE AN ATTEMPT TO REPLACE OR REMOVE OUR MANAGEMENT OR PREVENT THE SALE OF OUR COMPANY, WHICH COULD DIMINISH THE VALUE OF OUR COMMON STOCK. Our certificate of incorporation, bylaws and the laws of Delaware contain provisions that may delay, deter or prevent a takeover attempt that stockholders might consider in their best interests. For example, our organizational documents provide for a classified board of directors with staggered terms, prevent stockholders from taking action by written consent, prevent stockholders from calling a special meeting of stockholders, provide for supermajority voting requirements to amend our certificate of incorporation and certain provisions of our bylaws and provide for the filling of vacancies on our board of directors by the vote of a majority of the directors then in office. These provisions will render the removal of the incumbent board of directors or management more difficult. In addition, these provisions may prevent stockholders from receiving the benefit of any premium over the market price of our common stock offered by a bidder in a potential takeover. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging takeover attempts in the future. The Massachusetts insurance law prohibits any person from acquiring control of us, and thus indirect control of Safety Insurance, without the prior approval of the Commissioner. That law presumes that control exists where any person, directly or indirectly, owns, controls, holds the power to vote or holds proxies representing 10% or more of our outstanding voting stock. Even persons who do not acquire beneficial ownership of more than 10% of the outstanding shares of our common stock may be deemed to have acquired such control if the Commissioner determines that such control exists in fact. Therefore, any person seeking to acquire a controlling interest in us would face regulatory obstacles which could delay, deter or prevent an acquisition that stockholders might consider in their best interests. Section 203 of the General Corporation Law of Delaware, the jurisdiction in which Safety Group is organized, may affect the ability of an "interested stockholder" to engage in certain business combinations including mergers, consolidations or acquisitions of additional shares, for a period of three years following the time that the stockholder becomes an interested stockholder. An interested stockholder is defined to include persons owning directly or indirectly 15% or more of the outstanding voting stock of the corporation. 18 WE WILL NOT HAVE SUBSTANTIAL PROCEEDS FROM THE OFFERING, THE DIRECT SALE AND OUR NEW CREDIT FACILITY TO EXPAND OR INVEST IN OUR BUSINESS. Substantially all of the proceeds from the offering, the Direct Sale and our new credit facility will be used to repay our existing indebtedness. We therefore do not expect to have available to us significant proceeds from the offering or the Direct Sale to expand or invest in our business. Assuming the underwriters do not exercise their over-allotment option, we will pay approximately 31% of the net proceeds of the offering, the Direct Sale and our new credit facility to certain Investors in repayment of our senior subordinated notes and payment of dividends on our preferred stock (assuming the payments occur on October 31, 2002). These Investors are affiliates of our Company. See "Use of Proceeds." FUTURE SALES OF SHARES OF OUR COMMON STOCK BY OUR EXISTING STOCKHOLDERS IN THE PUBLIC MARKET, OR THE POSSIBILITY OR PERCEPTION OF SUCH FUTURE SALES, COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR STOCK. Our Management Team in the aggregate currently owns 27.8% of the common stock of Safety Group. The Investors currently hold the remaining 72.2% of the common stock of Safety Group. After the offering, the Direct Sale and the Preferred Share Exchange, the Management Team and the Investors will hold approximately 12% and 45%, respectively, of the common stock of Safety Group on a fully-diluted basis, assuming the underwriters do not exercise their over-allotment option. Furthermore, we granted the Investors and our Management Team demand and "piggyback" registration rights with respect to our common stock pursuant to a stockholders agreement entered in connection with the Acquisition. Their demand registration rights allow them to require Safety Group to register their shares for public sale, while their "piggyback" registration rights allow them to include their shares in other registered offerings of Safety Group's shares. No prediction can be made as to the effect, if any, that future sales of shares by our existing stockholders, or the availability of shares for future sale, will have on the prevailing market price of our common stock from time to time. Sales of substantial amounts of our common stock in the public market by our existing stockholders, or the possibility or perception that such sales could occur, could cause the prevailing market prices for our common stock to decrease. If such sales reduce the market price of our common stock, our ability to raise additional capital in the equity markets may be adversely affected. As more fully described in "Underwriting," the Management Team and the Investors have agreed not to sell their shares or exercise any registration rights with respect to their shares without the prior written consent of Credit Suisse First Boston Corporation during the period of 180 days following the date of this prospectus. BECAUSE THERE HAS BEEN NO PRIOR PUBLIC MARKET FOR OUR COMMON STOCK, THERE CAN BE NO ASSURANCE THAT A PUBLIC MARKET WILL DEVELOP. Prior to this offering, there has been no public market for our common stock and there can be no assurance that an active trading market will develop and continue upon completion of this offering or that the market price for our common stock will not decline below the initial public offering price. The initial public offering price will be determined through negotiations between us and the underwriters. The initial public offering price of our common stock will be based on numerous factors and may not be indicative of the market price for our common stock after the initial public offering. Factors such as variations in our actual or anticipated operating results, changes in or failure to meet earnings estimates of securities analysts, market conditions in the insurance industry, regulatory actions and general economic and securities market conditions, among other factors, could cause the market price of our common stock to decline below the initial public offering price. 19 THE ACQUISITION On October 16, 2001, Safety Group acquired Thomas Black Corporation, the holding company for our insurance and other subsidiaries, from a group of stockholders including Thomas Black Corporation's founder and members of his immediate family, as well as Thomas Black Corporation's employee stock ownership plan. In order to arrange the financing of the transaction and to negotiate the terms of the Acquisition, our Management Team obtained the assistance of The Jordan Company LLC, a private investment firm that specializes in buying and building companies in partnership with management. The Jordan Company assembled a group of equity investors to complete the Acquisition, consisting of institutional investors (including JZ Equity Partners plc), individual investors employed by or serving as consultants to The Jordan Company and our Management Team. JZ Equity Partners is an investment trust, the shares of which are publicly traded on the London Stock Exchange. Its principal business is to invest, primarily in the United States, in debt and equity securities recommended by Jordan/Zalaznick Advisers, Inc., its sole investment adviser and an affiliate of The Jordan Company. Additional acquisition capital consisted of senior subordinated notes and preferred stock purchased by JZ Equity Partners and a term loan and revolving credit facility arranged by Fleet National Bank. The following table sets forth the aggregate sources and uses of funds for the Acquisition. SOURCES OF FUNDS

($ IN MILLIONS) --------------- Existing credit facility Term loan................................................. $ 55.0 Revolving credit facility................................. 14.5 Senior subordinated notes................................... 30.0 Senior redeemable cumulative preferred stock................ 22.4 Common equity purchased by certain of the Investors......... 1.8 ------ Total sources........................................... $123.7 ======

USES OF FUNDS

($ IN MILLIONS) --------------- Payment for shares.......................................... $103.1 Repayment of existing indebtedness, including interest and prepayment penalties...................................... 8.0 Management employment obligations........................... 3.4 Fees, expenses and working capital.......................... 9.2 ------ Total uses.............................................. $123.7 ======

To finance the Acquisition, we entered into our existing credit facility, which consists of a $55 million term loan and a $20 million revolving credit facility. At the closing of the Acquisition, the $14.5 million we borrowed under our revolving credit facility had an interest rate of LIBOR plus 3.75% and the $55 million we borrowed under our term loan had an interest rate of LIBOR plus 3.75%. "LIBOR" stands for London Inter-bank Offered Rate, and means the interest rate that the largest international banks charge each other for loans. We secured our obligations under our existing credit facility with our assets, the assets of our non-insurance subsidiaries and the capital stock of all our subsidiaries (except Safety Indemnity Insurance Company). The $30 million we obtained through the issuance of our senior subordinated notes has an interest rate of 13%. Our senior redeemable cumulative preferred stock accrues a cumulative dividend of 6% per year. We believe that the interest rates on the debt and the dividend rate on the preferred stock represented prevailing market rates at 20 the time of the Acquisition. At the closing of the Acquisition, Thomas Black Corporation refinanced $8.0 million of indebtedness which had a weighted average interest rate of 7.0%. In addition, in connection with the Acquisition, Safety Group loaned our Management Team an aggregate of $695,000 in order to purchase shares of our common stock. These recourse loans are secured by a pledge of the shares of common stock each executive purchased and bear interest payable semiannually at a rate equal to 5%. The loans are due and payable on the earlier of December 31, 2011 or 90 days after any such executive is no longer employed with us, but may be prepaid by the executive at any time. Our Management Team used these loans to purchase an aggregate of 27.8% of our outstanding common stock. At the time of the Acquisition, Safety Group paid an aggregate of $3.4 million in bonuses to the members of the Management Team and to certain of our other employees. These bonuses were payable upon a change in control of our Company under the employment contracts these employees had with our Company prior to the Acquisition. The members of our Management Team also were parties to an agreement with our Company that would have resulted in their receiving certain other bonuses following a change of control of our Company, provided that following the change of control they remained employed by us or left employment for good reason. These bonuses, which would have been payable to them in installments of 30%, 30% and 40%, respectively, on each of the first, second and third anniversaries of the change of control, would have totaled up to $16.0 million in the aggregate. Prior to the closing of the Acquisition, the members of our Management Team entered into agreements with Safety Insurance under which they agreed not to receive these bonuses. In addition, we entered into new employment agreements with members of our Management Team and granted certain stock appreciation rights to the members of our Management Team. See "Management--Management Compensation" and "Certain Relationships and Related Transactions." Upon the closing of the Acquisition, we entered into a management consulting agreement with TJC Management Corporation, an affiliate of The Jordan Company. TJC Management may be considered an affiliate of our company because three of our directors are executives of The Jordan Company, and executives of and consultants to The Jordan Company own an aggregate of approximately 27.4% of our common stock. Under the management consulting agreement, TJC Management renders consulting services to us in connection with our financial and business affairs, our relationships with lenders, stockholders and other third parties, and the expansion of our business. Under the agreement, TJC Management is entitled to a management fee of $1.0 million per year, as well as up to a 2.0% fee on the closing of certain purchase or sale transactions and a 1.0% fee with respect to certain financing transactions. We have paid TJC Management approximately $782,636 under this agreement through November 12, 2002. We have agreed with TJC Management to amend the management consulting agreement as of the closing of this offering. Under the agreement as amended, we will no longer be obligated to pay the $1.0 million annual management fee and TJC Management will no longer be obligated to provide consulting services to us other than in connection with the acquisition, sale or financing transactions described above. In consideration for their agreement to terminate the annual fee and their services to us under the agreement prior to the closing, we have agreed to pay TJC Management $4.0 million upon the closing. TJC Management will not receive any other fee upon the closing of the offering or of our new bank credit facility or in respect of the portion of the annual management fee accrued and unpaid through the closing. Following the closing of the Acquisition, JZ Equity Partners sold a portion of its notes, preferred stock and common stock to affiliates of Trust Company of the West and of Fairholme Capital Management. Following these purchases, Safety Group's common stock was owned by our Management Team (27.8%), executives of and consultants to The Jordan Company (27.4%), JZ Equity Partners plc (17.9%), affiliates of Trust Company of the West (9.7%), Leucadia Investors, Inc. (9.0%), Fairholme 21 Partners, L.P. (8.1%) and J/Z CBO (Delaware), LLC, a fund managed by Jordan/Zalaznick Advisors Inc., an affiliate of The Jordan Company (0.2%). An affiliate of Leucadia Investors, Inc. is an investor in The Jordan Company. For further discussion of the transactions we consummated in connection with the Acquisition, as well as a description of the management consulting agreement, the stockholders' agreement entered into by all of our stockholders, the registration rights of holders of our common stock and certain other matters, see "Certain Relationships and Related Transactions." THE PREFERRED SHARE EXCHANGE The holders of our outstanding preferred stock have agreed to amend the terms of the preferred stock to make it automatically convert into our common stock upon the closing of this offering. Currently, the preferred stock is not convertible into common stock under any circumstances. The conversion price will be equal to the initial public offering price of our common stock in this offering. Assuming an initial public offering price of $13.50 per share (the midpoint of the range set forth on the cover page of this prospectus), an aggregate of 1,659,257 shares of our common stock will be issued upon conversion. This agreement will be effected by our amended and restated certificate of incorporation to be filed prior to this offering. THE DIRECT SALE We have agreed to sell, and Fairholme Partners, L.P., one of the Investors, has agreed to purchase for investment directly from us on a non-underwritten basis, an aggregate of 350,000 shares of our common stock. After the offering, the Preferred Share Exchange and the Direct Sale, Fairholme Partners, L.P. will hold 1,191,982 shares of our common stock, representing 8.6% of our outstanding common stock on a fully-diluted basis. This purchase will be consummated simultaneously with the consummation of this offering, at the initial public offering price, for an aggregate price of $4.7 million assuming an initial public offering price of $13.50 per share. We refer to this sale in this prospectus as the Direct Sale. The consummation of the Direct Sale is not a condition to the consummation of this offering. As a holder of outstanding shares of our common stock, Fairholme Partners, L.P. has entered into the lock-up agreement described in "Underwriting" which would apply to the shares purchased in the Direct Sale. CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING STATEMENTS Some of the statements under "Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and elsewhere in this prospectus may include forward-looking statements which reflect our current views with respect to future events and financial performance. These statements include forward-looking statements both with respect to us in general and the insurance sector specifically. Statements which include the words "expect," "intend," "plan," "believe," "project," "anticipate," "will," and similar statements of a future or forward-looking nature identify forward-looking statements for purposes of the federal securities laws or otherwise. All forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause actual results to differ materially from those indicated in these statements. We believe that these factors include but are not limited to those described under "Risk Factors" above. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. 22 USE OF PROCEEDS We estimate that our net proceeds from this offering and the Direct Sale will be approximately $77.6 million, based on an assumed initial public offering price of $13.50 per share (the midpoint of the range set forth on the cover page of this prospectus), and after deducting estimated underwriting discounts and estimated offering expenses we must pay. If the underwriters exercise their over-allotment option in full, we estimate that our net proceeds from this offering and the Direct Sale will be approximately $88.9 million. We anticipate that, concurrently with the completion of this offering, we will enter into a new $30.0 million revolving credit facility with Fleet National Bank to provide additional funds to accomplish the repayments described below and to obtain additional borrowing capacity under a revolving line of credit. We intend to borrow the remaining amount necessary for the purposes set forth below (which would be approximately $25.1 million based on the assumptions above) under this new credit facility at the closing of the offering. We intend to use the net proceeds of this offering and the Direct Sale and of our borrowings under our new credit facility for the following purposes (in each case, assuming the payments occur on October 31, 2002): - Approximately $66.6 million will be used to repay our existing credit facility. This indebtedness with Fleet National Bank consists of a $20.0 million senior secured revolving credit facility (of which $14.5 million is outstanding as of November 12, 2002), which is due and payable on October 16, 2006, and a $55.0 million senior secured term loan (of which $52.0 million is outstanding as of November 12, 2002), which is due and payable on December 31, 2007, together with accrued and unpaid interest on the credit facility and the term loan. The current interest rate under our existing credit facility is 5.58%. The proceeds from these borrowings and the issuance of our senior subordinated notes were used to fund, in part, the Acquisition, including to purchase Thomas Black Corporation's stock, refinance Thomas Black Corporation's indebtedness, pay existing management obligations and acquisition expenses and provide working capital. - Approximately $30.0 million will be used to repay $30.0 million principal amount of 13.0% senior subordinated notes, together with accrued and unpaid interest. - Approximately $1.4 million will be used to pay accrued and unpaid dividends on our 6.0% cumulative senior preferred stock. - Any remaining net proceeds will be used for our general corporate purposes. Our senior subordinated notes and preferred stock are held by the following Investors: JZ Equity Partners plc; J/Z CBO (Delaware), LLC; TCW/Crescent Mezzanine Trust III; TCW/Crescent Mezzanine Partners III, L.P.; TCW/Crescent Mezzanine Partners III Netherlands, L.P.; and Fairholme Partners, L.P. Assuming the underwriters do not exercise their over-allotment option, these Investors will receive approximately 31% of the net proceeds of the offering, the Direct Sale and our new credit facility in repayment of our senior subordinated notes and payment of dividends on our preferred stock. These Investors are affiliates of our Company. 23 DIVIDEND POLICY Our board of directors currently intends to declare an annual dividend on our common stock of $0.28 per share. The declaration and payment of dividends is subject to the discretion of our board of directors, and will depend on our financial condition, results of operations, cash requirements, future prospects, regulatory and contractual restrictions on the payment of dividends by our subsidiaries, and other factors deemed relevant by the board. There is no requirement or assurance that we will declare and pay any dividends. For a discussion of our cash resources and needs, see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." Safety Group is a holding company and a legal entity separate and distinct from Safety Insurance, our principal operating subsidiary, which is directly owned by Thomas Black Corporation, an intermediate holding company which is the primary borrower under our existing credit facility. As a holding company without significant operations of its own, the principal sources of Safety Group's funds are dividends and other distributions from Thomas Black Corporation. Thomas Black Corporation's principal sources of funds are dividends and other distributions from Safety Insurance. The ability of Safety Insurance to pay dividends is subject to limits under Massachusetts insurance law. Further, the ability of Thomas Black Corporation to pay dividends, and our ability to incur indebtedness or to use the proceeds of equity offerings, will be subject to limits under our new credit facility. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." 24 CAPITALIZATION The following table sets forth, at June 30, 2002, the total capitalization of Safety on an actual basis and as adjusted to give effect to: - the issuance in this offering and the Direct Sale of 6,350,000 shares of our common stock (at an assumed initial public offering price of $13.50 per share, after deducting estimated underwriting discounts and estimated offering expenses we must pay and assuming that the underwriters' over-allotment option is not exercised); - the use of the net proceeds of the offering and the Direct Sale as set forth in "Use of Proceeds;" and - the issuance of 1,659,257 shares of our Common Stock in the Preferred Share Exchange. This table should be read in conjunction with "Unaudited Pro Forma Financial Data" and the consolidated financial statements and the accompanying notes appearing elsewhere in this prospectus.

AS OF JUNE 30, 2002 ---------------------- UNAUDITED PRO FORMA, ACTUAL AS ADJUSTED -------- ----------- ($ IN THOUSANDS) DEBT: Existing senior secured revolving credit facility......... $ 14,500 -- New revolving credit facility(1).......................... -- 27,980 Senior secured term loan.................................. 54,000 -- Senior subordinated notes................................. 30,000 -- -------- -------- Total debt.............................................. 98,500 27,980 -------- -------- MANDATORILY REDEEMABLE PREFERRED STOCK...................... 23,352 -- -------- -------- STOCKHOLDERS' EQUITY: Common stock.............................................. 58 139 Additional paid-in capital................................ 2,442 106,534 Retained earnings......................................... 116,438 111,803 Accumulated other comprehensive income, net of taxes...... 900 900 Promissory notes receivable from management............... (720) (720) -------- -------- Total stockholders' equity.............................. $119,118 218,656 -------- -------- TOTAL CAPITALIZATION........................................ $240,970 246,636 ======== ========

------------------------ (1) We anticipate that, concurrently with the completion of this offering, we will enter into a new $30.0 million revolving credit facility. 25 DILUTION At June 30, 2002, our net tangible book value was $119.1 million, or $20.50 per share of common stock. As used below, our net tangible book value per share of common stock represents stockholders' equity divided by the number of shares of common stock outstanding. After giving effect to the issuance of 8,009,257 shares of our common stock (at an assumed initial public offering price of $13.50 per share of common stock, assuming the Direct Sale and the Preferred Share Exchange are consummated simultaneously with this offering at the initial offering price, and after deducting estimated underwriting discounts and estimated offering expenses we must pay and assuming that the underwriters' over-allotment option is not exercised), and the application of the estimated net proceeds therefrom, as set forth in "Use of Proceeds," our net tangible book value as of June 30, 2002, would have been $218.7 million, or $15.82 per share of common stock. This amount represents an immediate decrease of $4.68 per share of common stock to the existing stockholders and an immediate accretion of $2.32 per share of common stock issued to the new investors purchasing stock offered hereby at the assumed public offering price. The following table illustrates this per share accretion: Assumed initial public offering price per share of common $13.50 stock..................................................... Net tangible book value per share of common stock before the offering, the Direct Sale and Preferred Share Exchange................................................ $20.50 Net tangible book value per share of common stock after the offering, the Direct Sale and the Preferred Share Exchange................................................ $15.82 Decrease attributable to the offering, the Direct Sale and the Preferred Share Exchange.............................. $(4.68) Accretion per share of common stock to new investors after the offering, the Direct Sale and the Preferred Share Exchange.................................................. $ 2.32 The following table sets forth the number of our shares of common stock issued, the total consideration paid and the average price per share of common stock paid by all existing stockholders and new investors, after giving effect to the issuance of 6,350,000 shares of common stock in the offering and the Direct Sale at an assumed initial public offering price of $13.50 per share (before deducting estimated underwriting discounts and estimated offering expenses we must pay and assuming that the underwriters' over-allotment option is not exercised) and the occurrence of the Preferred Share Exchange.

SHARES ISSUED TOTAL CONSIDERATION AVERAGE --------------------- ----------------------- PRICE PER NUMBER PERCENT AMOUNT PERCENT SHARE ---------- -------- ------------ -------- --------- Existing stockholders(1)................... 7,469,257 54.1% $ 24,900,000 22.5% $ 3.33 Offering................................... 6,000,000 43.4 81,000,000 73.2 13.50 Direct Sale................................ 350,000 2.5 4,725,000 4.3 13.50 ---------- ---- ------------ ---- Total.................................. 13,819,257 100% $110,625,000 100% $ 8.01 ========== ==== ============ ====

------------------------ (1) Including shares issued in the Preferred Share Exchange. 26 SELECTED HISTORICAL FINANCIAL DATA The following table sets forth our selected historical consolidated financial data as of and for each of the five years ended December 31, 2001 and as of and for the six months ended June 30, 2001 and 2002. Prior to October 16, 2001, Thomas Black Corporation was the parent company of Safety Insurance. In the Acquisition, on October 16, 2001, Safety Group became the parent company of Thomas Black Corporation. The selected historical consolidated financial data for the predecessor period January 1, 2001 to October 15, 2001 and the successor period October 16, 2001 to December 31, 2001 and as of December 31, 2001 have been derived from the financial statements of Safety Group and Thomas Black Corporation included in this prospectus which have been audited by PricewaterhouseCoopers LLP, independent accountants. The selected historical consolidated financial data for the years ended December 31, 1999, and 2000 and as of December 31, 2000 have been derived from Thomas Black Corporation's financial statements included in this prospectus which have been audited by PricewaterhouseCoopers LLP. The selected historical consolidated financial data for the years ended December 31, 1997 and 1998 and as of December 31, 1997, 1998 and 1999 have been derived from Thomas Black Corporation's consolidated financial statements not included in this prospectus, which have been audited by PricewaterhouseCoopers LLP. As a result of the Acquisition, financial data for periods prior to the Acquisition may not be comparable with financial data for periods following the Acquisition. The selected historical consolidated income statement data for the six months ended June 30, 2001 and 2002 and the selected historical consolidated balance sheet data as of June 30, 2002 have been derived from our unaudited interim condensed consolidated financial statements included in this prospectus. The selected historical consolidated balance sheet data as of June 30, 2001 have been derived from our unaudited interim condensed balance sheet data not included in this prospectus. We have prepared the selected historical consolidated financial data, other than statutory data, in conformity with GAAP. We have derived the statutory data from the annual statements of our insurance subsidiaries filed with insurance regulatory authorities, which were prepared in accordance with statutory accounting practices, which vary in certain respects from GAAP. The selected financial data presented below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and the accompanying notes included in this prospectus in order to more fully understand the historical consolidated financial data. 27

PREDECESSOR YEAR ENDED DECEMBER 31, --------------------------------------------------------- 1997 1998 1999 2000 ------------ ------------ ------------ ------------ ($ IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA) ( INCOME STATEMENT DATA: Direct written premiums............... $ 272,495 $ 287,507 $ 349,206 $ 427,457 Net written premiums..... 243,688 259,153 330,961 430,030 Net earned premiums...... 242,760 246,507 300,020 381,413 Investment income........ 22,349 22,965 23,870 26,889 Net realized gain (loss) on investments......... 8,551 10,119 8,102 (1,246) Finance and other service income................. 6,222 9,343 10,989 12,656 ---------- ---------- ---------- ---------- Total income........... 279,882 288,934 342,981 419,712 Losses and loss adjustment expenses.... 180,643 188,913 225,241 275,138 Underwriting, operating and related expenses... 78,261 76,115 91,357 115,567 Transaction expenses(2)............ -- -- -- 406 Interest expense......... 2,040 1,716 1,418 1,072 ---------- ---------- ---------- ---------- Total expenses......... 260,944 266,744 318,016 392,183 Income (loss) before income taxes........... 18,938 22,190 24,965 27,529 Income tax expense....... 5,688 7,778 8,667 8,255 ---------- ---------- ---------- ---------- Net income (loss) before extraordinary item and preferred stock dividends.............. 13,250 14,412 16,298 19,274 Excess of fair value of acquired net assets over purchase price.... -- -- -- -- ---------- ---------- ---------- ---------- Net income before preferred stock dividends.............. $ 13,250 $ 14,412 $ 16,298 $ 19,274 Dividends on mandatorily redeemable preferred stock.................. -- -- -- -- ---------- ---------- ---------- ---------- Net income available to common stockholders.... $ 13,250 $ 14,412 $ 16,298 $ 19,274 ========== ========== ========== ========== Net income (loss) per common share before extraordinary item Basic.................. $ 17.77 $ 18.47 $ 19.95 $ 22.50 ========== ========== ========== ========== Diluted................ $ 17.77 $ 18.47 $ 19.95 $ 22.50 ========== ========== ========== ========== Extraordinary item per common share Basic.................. $ -- $ -- $ -- $ -- ========== ========== ========== ========== Diluted................ $ -- $ -- $ -- $ -- ========== ========== ========== ========== Net income per common share Basic.................. $ 17.77 $ 18.47 $ 19.95 $ 22.50 ========== ========== ========== ========== Diluted................ $ 17.77 $ 18.47 $ 19.95 $ 22.50 ========== ========== ========== ========== Weighted average number of common shares outstanding Basic.................. 745,800 780,300 816,800 856,800 ========== ========== ========== ========== Diluted................ 745,800 780,300 816,800 856,800 ========== ========== ========== ==========

PREDECESSOR SUCCESSOR PREDECESSOR SUCCESSOR PERIOD PERIOD ------------ ------------ ------------ ------------ SIX MONTHS ENDED JANUARY 1- OCTOBER 16- JUNE 30, - OCTOBER 15, DECEMBER 31, --------------------------- 2001(1) 2001(1) 2001 2002 - ------------ ------------ ------------ ------------ ($ IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA) INCOME STATEMENT DATA: Direct written premiums............... $ 391,628 $ 80,238 $ 259,918 $ 283,382 Net written premiums..... 382,486 82,980 256,322 285,355 Net earned premiums...... 347,098 100,175 218,013 241,420 Investment income........ 22,246 5,359 13,979 13,659 Net realized gain (loss) on investments......... (766) (4,284) (591) (2,388) Finance and other service income................. 10,559 2,950 6,589 8,024 ---------- ---------- ---------- ---------- Total income........... 379,137 104,200 237,990 260,715 Losses and loss adjustment expenses.... 276,383 75,559 172,433 182,926 Underwriting, operating and related expenses... 89,297 30,212 58,568 65,645 Transaction expenses(2)............ 5,605 3,874 109 -- Interest expense......... 550 1,823 387 4,151 ---------- ---------- ---------- ---------- Total expenses......... 371,835 111,468 231,497 252,722 Income (loss) before income taxes........... 7,302 (7,268) 6,493 7,993 Income tax expense....... 1,678 (1,666) 2,143 2,524 ---------- ---------- ---------- ---------- Net income (loss) before extraordinary item and preferred stock dividends.............. 5,624 (5,602) 4,350 5,469 Excess of fair value of acquired net assets over purchase price.... -- 117,523 -- -- ---------- ---------- ---------- ---------- Net income before preferred stock dividends.............. $ 5,624 $ 111,921 $ 4,350 $ 5,469 Dividends on mandatorily redeemable preferred stock.................. -- (280) -- (672) ---------- ---------- ---------- ---------- Net income available to common stockholders.... $ 5,624 $ 111,641 $ 4,350 $ 4,797 ========== ========== ========== ========== Net income (loss) per common share before extraordinary item Basic.................. $ 6.26 $ (1.07) $ 4.88 $ 0.87 ========== ========== ========== ========== Diluted................ $ 6.26 $ (1.07) $ 4.88 $ 0.83 ========== ========== ========== ========== Extraordinary item per common share Basic.................. $ -- $ 21.29 $ -- $ -- ========== ========== ========== ========== Diluted................ $ -- $ 21.29 $ --