As filed with the Securities and Exchange Commission on May 17, 2019.

Registration No. 333-

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

Safe Auto Insurance Group, Inc.
(Exact name of registrant as specified in its charter)

Ohio	6331	31-1400020
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification No.)

4 Easton Oval
Columbus, Ohio 43219
Telephone: (614) 231-0200
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

Ronald H. Davies
President and Chief Executive Officer
Safe Auto Insurance Group, Inc.
4 Easton Oval
Columbus, Ohio 43219
Telephone: (614) 231-0200
(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

David J. Goldschmidt, Esq.
Dwight S. Yoo, Esq.
Benjamin K. Marsh, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
4 Times Square
New York, New York 10036
Telephone: (212) 735-3000

Gary Horowitz, Esq.
John C. Ericson, Esq.
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, New York 10017
Telephone: (212) 455-2000

Approximate date of commencement of the proposed sale to the public: As soon as practicable after this Registration Statement is declared 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. o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

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. o

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. o

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

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	☒	Smaller reporting company	o
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. o

CALCULATION OF REGISTRATION FEE

Title of each class of securities to be registered	Proposed maximum aggregate offering price⁽¹⁾⁽²⁾			Amount of registration fee
Common Shares, par value $0.01 per share	$	50,000,000		$	6,060

(1)

Estimated solely for the purpose of determining the amount of the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended.

(2)

Includes the aggregate offering price of common shares that are subject to the underwriters’ option to purchase additional shares. See “Underwriting.”

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, as amended, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

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The information in this preliminary prospectus is not complete and may be changed. We and the selling shareholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted

SUBJECT TO COMPLETION, DATED MAY 17, 2019
PRELIMINARY PROSPECTUS

Shares

Safe Auto Insurance Group, Inc.
Common Shares

This is the initial public offering of common shares of Safe Auto Insurance Group, Inc.

We are offering common shares. The selling shareholders identified in this prospectus are offering common shares. We will not receive any of the proceeds from the sale of common shares by the selling shareholders.

We currently expect the initial public offering price to be between $ and $ per common share. Prior to this offering, there has been no public market for our common shares. We have applied to list our common shares on the Nasdaq Global Select Market (the “Nasdaq”) under the trading symbol “SAIG.”

Investing in our common shares involves risks. See “Risk Factors” beginning on page 13.

Neither the Securities and Exchange Commission nor any state securities commission or other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

We are an “emerging growth company” as that term is defined in the Jumpstart Our Business Startups Act and, as such, are subject to certain reduced public company reporting requirements. See “Prospectus Summary—Implications of Being an Emerging Growth Company.”

After the completion of this offering, our founders and certain of their immediate family members and trusts for their respective benefits will control a majority of the voting power of shares eligible to vote in the election of our directors. As a result, we expect to be a “controlled company” within the meaning of the Nasdaq rules and to qualify for, and rely on, exemptions from certain corporate governance requirements. See “Management—Controlled Company Exemption.”

	Per Share	Total
Initial public offering price	$	$
Underwriting discounts and commissions⁽¹⁾	$	$
Proceeds, before expenses, to us	$	$
Proceeds, before expenses, to the selling shareholders	$	$

(1)

See “Underwriting” for a description of compensation to be paid to the underwriters.

To the extent that the underwriters sell more than common shares, the underwriters have the option to purchase up to an additional common shares from us and the selling shareholders at the initial public offering price, less the underwriting discounts and commissions, within 30 days from the date of this prospectus. We will not receive any of the proceeds from the sale of common shares by the selling shareholders upon any such exercise.

The underwriters expect to deliver the common shares against payment in New York, New York on or about , 2019.

Joint Book-Running Managers

BofA Merrill Lynch

Deutsche Bank Securities

Co-Managers

Keefe, Bruyette & Woods
A Stifel Company

Sandler O’Neill + Partners, L.P.

Dowling & Partners Securities, LLC

The date of this prospectus is , 2019.

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Prospectus Summary		1
Risk Factors		13
Forward-Looking Statements		36
Use of Proceeds		37
Dividend Policy		38
Capitalization		39
Dilution		40
Selected Historical Consolidated Financial and Other Data		42
Management’s Discussion and Analysis of Financial Condition and Results of Operations		44
Business		70
Management		83
Executive and Director Compensation		88
Certain Relationships and Related Person Transactions		95
Principal and Selling Shareholders		97
Description of Capital Stock		100
Certain United States Federal Income Consequences to Non-U.S. Holders		107
Shares Eligible for Future Sale		110
Underwriting		113
Legal Matters		120
Experts		120
Where You Can Find More Information		120
Index to Financial Statements		F-1

None of us, the underwriters or the selling shareholders have authorized anyone to provide you with information different from that contained in this prospectus, any amendment or supplement to this prospectus or any free writing prospectus prepared by us or on our behalf. None of us, the underwriters or the selling shareholders take any responsibility for, or can provide any assurance as to the reliability of, any information other than the information in this prospectus, any amendment or supplement to this prospectus or any free writing prospectus prepared by us or on our behalf. We and the selling shareholders are offering to sell, and seeking offers to buy, common shares only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of common shares. Our business, financial condition, results of operations and prospects may have changed since that date.

Through and including , 2019 (the 25^th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

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ABOUT THIS PROSPECTUS

Certain monetary amounts, percentages and other figures included in this prospectus have been subject to rounding adjustments. Percentage amounts included in this prospectus have not in all cases been calculated on the basis of such rounded figures, but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this prospectus may vary from those obtained by performing the same calculations using the figures in our consolidated financial statements included elsewhere in this prospectus. Certain other amounts that appear in this prospectus may not sum due to rounding.

Market and Industry Data

In this prospectus, we present certain market and industry data. This information is based on various third-party sources that we believe to be reliable and certain information is derived from a report commissioned by us and prepared by Dynata, LLC. We have not independently verified any third-party information. Forecasts and projections are based on historical market data, other publicly available information, our knowledge of our industry and assumptions based on such information and knowledge. These forecasts and projections have not been verified by any independent source. In addition, assumptions and estimates of our and our industry’s future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.” These and other factors could cause future performance to differ materially from our assumptions and estimates. See “Forward-Looking Statements.”

Trademarks, Service Marks and Trade Names

This prospectus contains various trademarks, service marks and trade names that are our registered trademarks, service marks or trade names, such as “SAFE AUTO INSURANCE,” or trademarks or service marks for which we have pending applications or common law rights. This prospectus also contains trademarks, service marks and trade names of other companies that are the property of their respective holders. We do not intend our use or display of such names or marks to imply relationships with, or endorsements of us by, any other company.

Solely for convenience, the trademarks, service marks and trade names referred to in this prospectus are without the ®, ^TM and ^SM symbols, but such references are not intended to indicate, in any way, that the owner thereof will not assert, to the fullest extent under applicable law, such owner’s rights to these trademarks, service marks and trade names.

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus and does not contain all of the information you should consider before investing in our common shares. Unless the context otherwise requires, the terms “we,” “us,” “our,’’ “Safe Auto,” and “our Company” refer to Safe Auto Insurance Group, Inc. and its consolidated subsidiaries. References to our “principal insurance subsidiary” are to Safe Auto Insurance Company, an Ohio insurance company. References to “our insurance agency” or “SAGA” are to Safe Auto Group Agency, Inc. You should read this entire prospectus carefully, including the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and accompanying notes included elsewhere in this prospectus, before you decide to invest in our common shares. This prospectus includes forward-looking statements that involve risks and uncertainties. See “Forward-Looking Statements.”

Company Overview

We are an established and growing direct-to-consumer personal automobile insurance company. We primarily sell liability insurance at states’ minimum financial responsibility limits in order to provide access to affordable personal automobile insurance to consumers who depend on their cars to reach their jobs and take care of their families. Our consumers prioritize flexibility and convenience, are budget-conscious and are generally underserved by the traditional insurance industry. We have developed and refined an approach that enables consumers to access our products anytime and anywhere, provides greater purchase, payment and policy maintenance flexibility and enables efficient claims management. We provide our customers a convenient self-service platform to manage their policies online and through our mobile application, while offering the ability to cease and resume coverage over a longer reinstatement period relative to our competitors without a burdensome re-application process. Our sophisticated data analytics capabilities enhance our ability to efficiently reach and segment consumers, continually calibrate pricing and policy terms and shorten management decision cycle times in order to rapidly adapt our product offering to evolving market conditions and consumer demand.

We believe we are well-positioned to capitalize on the secular shift in consumer behavior towards shopping online for insurance and purchasing directly from carriers, and have invested significantly in developing our online and mobile capabilities. As a result of this investment, we have experienced strong growth in the number of visitors to our websites, which increased by over 100% between 2013 and 2018, and the number of downloads of our mobile application, which increased by over 250% between 2014 and 2018. During the year ended December 31, 2018, we generated nearly 90% of our quotes online, including approximately 65% on mobile devices, and wrote approximately 60% of our new policies in a fully automated manner through our digital platforms. To complement our online and mobile platforms, we also have 24/7/365 physical and virtual contact centers with licensed insurance professionals to remotely assist our consumers with their specific insurance needs. By implementing a distribution strategy centered on our online and mobile capabilities, we have differentiated ourselves from many personal automobile insurance companies that typically utilize brick and mortar stores as the main point of contact with prospective and existing customers.

In 2012, we hired Ronald H. Davies, our current President and Chief Executive Officer (“CEO”), and implemented a new strategy for our company aimed at reaching a broader universe of consumers while continuing to drive operating profitability. With an expanded management team, we established an organizational structure designed to empower product managers to make rapid marketing and pricing decisions in their respective regions. This initiative, together with building a more data-driven analytical culture, has dramatically shortened management decision cycle times. We also further developed our data and information technology infrastructure, improving data quality and velocity, and built online and mobile capabilities while controlling operating expenses.

With this change in strategy, we have grown our business and generated attractive returns. Our premiums earned grew 11.6% from $338.6 million in the year ended December 31, 2017 to $377.9 million in the year ended December 31, 2018. During the same time period, the overall U.S. automobile insurance market grew 6.6%, according to S&P Global Market Intelligence. For the year ended December 31, 2018, our combined ratio, which is the ratio of losses and expenses to premiums earned, was 95.3%, which compares favorably to the overall U.S. automobile insurance industry average combined ratio of 97.7%, according to S&P Global Market Intelligence. For the year ended December 31, 2018, our return on equity was 10.7% and our adjusted return on

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equity was 12.7%. We calculate adjusted return on equity as adjusted net income divided by average shareholders’ equity. See “—Summary Historical Financial and Other Data” for a calculation of our adjusted return on equity and for a reconciliation of adjusted net income to net income in accordance with GAAP.

Competitive Strengths

We benefit from the following key competitive strengths:

Expertise in Direct-to-Consumer. We believe we are well-positioned to benefit from long-term growth in demand for click-to-buy personal automobile insurance coverage and have made significant investments to develop a technology-oriented, direct-to-consumer platform that we believe is at the forefront of our industry. Substantially all of our revenues are generated through our direct-to-consumer platform. As consumer adoption of technology has accelerated and required insurers to engage with consumers in the consumer’s preferred media and format, our online presence has proven essential in winning customers, and we believe our direct-to-consumer platform provides us with a significant competitive advantage to support future growth with minimal incremental infrastructure investment.

Deep Understanding of our Consumer Base. Over our 26-year history, we have developed a deep understanding of our consumer base. Our customers are budget-conscious and value the flexibility and convenience our automobile insurance products provide, including ease of starting and stopping coverage and the ability to manage their policies through our mobile application. Our consumer base includes, among others, people who depend on their cars to reach their jobs and take care of their families but who are unable to purchase more than minimum limits coverage, as well as singles and families who are starting out or starting over and seniors on fixed incomes. Our experience with and understanding of these consumers have helped us provide the right coverage at appropriate prices, positioning us to be their ideal automobile insurance partner.

Unmatched Focus on Customer Experience. We set ourselves apart by furnishing “three minute quotes” and 24/7/365 online payment and endorsement features, as well as access to contact centers. Our website, www.safeauto.com, offers online quotes and click-to-buy coverage, allowing consumers to understand and access the appropriate insurance coverage for their needs. Our mobile application, developed in 2013 and installed by over 100,000 customers in 2018, allows customers to make payments easily and show proof of insurance on-the-go. In addition, our highly experienced claims staff directly manages the claims process and focuses on efficiently investigating and settling all covered claims promptly and thoroughly.

Strong Brand Recognition. We believe that our brand is an important differentiating factor in reaching our consumers. We continue to invest significantly in brand advertising, marketing our products directly through digital media, television and radio to capture more business through a higher share of total media advertising. We have established a particularly strong presence and brand name in our home market of Ohio, where we had approximately 85% aided brand awareness (or recognition of our company when consumers are given a list of insurance brands) according to a 2017 Brand Awareness survey of our consumer base conducted by Dynata, LLC, and our aided brand awareness in our other core markets of Pennsylvania, Kentucky and Indiana ranged from 70-80%, according to the same survey. Over the past 15 years, we have invested over $100 million in media spending in each of Ohio and Pennsylvania, over $40 million in each of Indiana and Kentucky and over $300 million in the other states in which we operate. We believe our brand awareness in those remaining states is growing steadily as a result of our investment in media spending.

Data-Driven Analytical Culture Within an Agile Organizational Structure. Our data-driven culture and analytical capabilities empower employees throughout our organization to act responsively by adjusting pricing, underwriting and media spending in order to adapt quickly to local market conditions. Our senior management team has extensive experience in the insurance industry, averaging nearly 20 years of experience, and has demonstrated an ability to grow and profitably operate personal automobile insurance businesses as part of both public and private companies. Together, we focus on continued improvements in data availability, data velocity and analytical talent to drive business outcomes and accelerate management decision cycles. Our current management team has led a complete rewrite of our data warehouse and analysis systems, has aggressively hired analytic talent and has deployed a number of other key technology initiatives to upgrade our IT platforms. As a result, we are able to analyze a large amount of data to understand the performance of our products for each customer group, which in turn helps us create and refine predictive models to assess appropriate pricing strategies.

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Business and Growth Strategies

Our objective is to achieve profitable growth and increase shareholder value through the following key strategies:

Capitalize on Our Direct-to-Consumer Online and Mobile Capabilities. We intend to continue focusing on the direct-to-consumer channel, which benefits from the secular shift in consumer behavior toward shopping online and which has grown its share of the overall market. We believe personal automobile premiums will increasingly be sourced through direct-to-consumer channels, which should benefit mobile and online platforms such as ours. The number of unique visitors to our website increased over 100% from 2013 to 2018. Over the same period, the number of online quotes we provided increased nearly 250%. Online quotes represented over 85% of the total quotes we provided in 2018, up from 60% in 2013. Downloads of our mobile application have also steadily increased, and we had more than triple the downloads in 2018 compared to 2014 following the development of the application in 2013.

Optimize Our Media Strategy. We regard our ability to run marketing campaigns in national and local media as a core competency. We believe that investing in national, local and digital media is important and effective for increasing brand awareness, particularly as media markets have become nationally focused and multi-format in nature. In 2018, approximately half of our media spending was invested in national media and digital media, a significant increase since 2012, when over 90% of our media spending was invested in local media. Our marketing strategy has resulted in over a 150% increase in our quote volume between 2014 and 2018. By optimizing our spending in national media and growing it over time, we believe we can further increase brand awareness and capture market share while maintaining prudent cost controls.

Expand Our Presence in Existing States. We believe we have a competitive advantage in our existing states, given our strong brand awareness, local media knowledge and deep understanding of our consumers. Our objective is to profitably increase our market share in these states by further optimizing media spending, customer segmentation and product pricing. Given our regional scale, established presence and in-force insurance policies, we believe we are well-positioned to grow in our existing states over the long term through additional and increasingly targeted media spending without otherwise incurring significant incremental operating costs, thereby enhancing margins and profitability.

Expand into New States. Based on our increased focus on national media, we believe that expansion beyond the 17 states in which we currently issue coverage has become more economically attractive. We intend to proceed prudently with state expansion, given the different legal frameworks and competitive dynamics in each state. While maintaining a selective approach, we have identified and taken measures to enter a limited number of new states, including California, that represent attractive opportunities for expansion, as we believe our direct-to-consumer distribution platform offers an opportunity in these states to increase premiums earned by optimizing media spending and leveraging our strong brand awareness.

Continued Focus on Profitability. Over the past 26 years, we have been profitable in all but three years. As we seek to expand, we will continue to focus on profitability by leveraging our data-driven approach to pricing, claims handling and expense management and our ability to react quickly to market conditions. In addition, we intend to continue to invest in technology to drive further automation and operating efficiencies across all of our processes, including underwriting, policy processing, accounting, collections and claims handling.

Capture Additional Revenues. To better serve consumers seeking additional offerings, we have launched a retail agency platform focused on distributing other insurance products underwritten by strategic partners. This platform caters to consumers who are seeking additional insurance offerings, such as rental dwelling insurance, homeowners insurance, motorcycle insurance and commercial automobile insurance. By leveraging our data analytics and consumer insights capabilities, we have also begun to capture additional revenues from selling leads to third parties, and we believe we can grow this revenue stream going forward.

Reclassification of Common Shares

In connection with this offering, we will amend and restate our articles of incorporation to reclassify our outstanding voting common shares and non-voting common shares into a single class of newly-created common shares, each having one vote (the “Reclassification”). The Reclassification is further described under “Description of Capital Stock—Reclassification of Common Shares.”

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Risks Associated with Our Business

We are subject to a number of risks and uncertainties that may adversely affect our business, financial condition, results of operations and prospects. Investing in our common shares involves a high degree of risk and you should read carefully the section of this prospectus entitled “Risk Factors” for an explanation of these risks before investing. In particular, the following considerations may offset our competitive strengths or have a negative effect on our strategy or operating activities, which could cause a decrease in the price of our common shares and result in a loss of all or a portion of your investment:

•

Negative developments in the personal lines insurance industry may adversely impact us.

•

Intense competition could impair our ability to attract new customers, retain existing customers or successfully enter new markets.

•

Our future success depends on our ability to successfully execute our business plan and implement our growth strategy.

•

We may not succeed in developing and maintaining a brand that is recognized and trusted by consumers.

•

The customer base for our products may expose us to higher levels of customer turnover compared to other personal automobile insurance carriers.

•

Our results may fluctuate as a result of cyclical changes in the personal lines insurance industry and at the macroeconomic level.

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Our business is concentrated in a limited number of states and regions.

•

We must continue to optimize our web and mobile platforms in order to succeed.

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We may not price our products accurately.

•

Failure of our information technology and telecommunications systems could disrupt our operations and cause us to lose business.

•

Failure to protect the confidentiality of employee and consumer information or proprietary business information could lead to legal and reputational damage.

•

We are subject to a number of risks relating to the third-party processors and service providers on which we rely to support portions of our business.

•

Our losses and loss adjustment expenses could exceed our reserves.

•

We may not be able to retain our management team and key employees or attract and retain quality talent to compete in the marketplace.

•

We and our insurance subsidiaries are subject to comprehensive regulation that may restrict our ability to earn profits.

•

As a holding company, we depend on the results of operations of our subsidiaries to meet our obligations and pay future dividends to us.

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Our founders control us and the direction of our business and may have interests that differ from those of our other shareholders.

•

We expect to be a “controlled company” within the meaning of the Nasdaq rules and, as a result, would qualify for, and will rely on, exemptions from certain corporate governance requirements that provide protection to the shareholders of companies that are subject to such corporate governance requirements.

•

Our share price may be volatile, or may decline regardless of our operating performance, and you could lose all or part of your investment.

•

Provisions in our amended and restated articles of incorporation and amended and restated code of regulations (“amended and restated regulations”) and Ohio law could discourage, delay or prevent a change in control of our company and may adversely affect the trading price of our common shares.

•

We will incur significant increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.

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•

We have broad discretion in the use of the net proceeds from the sale of shares by us in this offering, and we cannot specify with any certainty the particular uses of such net proceeds nor guarantee that we will use such net proceeds effectively.

Ownership

Because of our ownership structure, we expect to be a “controlled company” within the meaning of the Nasdaq rules upon consummation of this offering. See “Management—Controlled Company Exception.”

Implications of Being an Emerging Growth Company

We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”). An emerging growth company may take advantage of reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:

•

being permitted to present only two years of audited financial statements and selected financial data and only two years of related disclosure in our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus;

•

while an emerging growth company, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”);

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the ability to use an extended transition period for complying with new or revised accounting standards;

•

reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and this and other registration statements; and

•

exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

We intend to take advantage of the reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards. Our decision to use the phase-in periods permitted by this election may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the longer phase-in periods under the JOBS Act and who will comply with new or revised financial accounting standards. If we were to subsequently elect instead to comply with these public company effective dates, such election would be irrevocable pursuant to the JOBS Act. See “Risk Factors—Risks Related to this Offering and Ownership of Our Common Shares—We are eligible to be treated as an emerging growth company, as defined in the JOBS Act, and are availing ourselves of the reduced disclosure requirements applicable to emerging growth companies, which could make our common shares less attractive to investors.” Since we expect to continue to be an emerging growth company following this offering, we will not be required to comply with certain disclosure requirements that are applicable to other public companies and we cannot be certain whether the reduced disclosure requirements applicable to emerging growth companies will make our common shares less attractive to investors.

We may take advantage of these provisions until the last day of our fiscal year following the fifth anniversary of the date of the first sale of our common equity securities pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”). However, if certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer,” our gross revenues for any fiscal year equal or exceed $1.07 billion (as adjusted for inflation from time to time pursuant to the Securities and Exchange Commission (the “SEC”) rules) or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of such five-year period.

Principal Executive Office and Corporate Information

We are incorporated in Ohio, and our principal executive offices are located at 4 Easton Oval, Columbus, Ohio 43219. Our telephone number is (614) 231-0200. Our website address is www.safeauto.com. Information contained on, or that can be accessed through, our website is not and should not be considered as a part of this prospectus.

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The Offering

Common shares offered by us

shares (plus up to an additional shares at the option of the underwriters).

Common shares offered by the selling shareholders

shares (plus up to an additional shares at the option of the underwriters).

Common shares outstanding after giving effect to this offering

shares (or shares if the underwriters exercise in full their option to purchase additional common shares).

Use of proceeds

We estimate that the net proceeds to us from this offering, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $ million (or $ million if the underwriters exercise in full their option to purchase additional common shares).

We intend to use our net proceeds from this offering to support our growth initiatives, increase our advertising spending and invest in our technology, as well as for general corporate purposes, including potential acquisitions. See “Use of Proceeds.”

We will not receive any proceeds from the sale of common shares offered by the selling shareholders, including from any exercise by the underwriters of their option to purchase additional shares from the selling shareholders.

Dividend policy

Following this offering, we do not anticipate declaring or paying any cash dividends on our common shares for the foreseeable future. The declaration, payment and amount of any future dividends will be subject to the discretion of our board of directors. See “Dividend Policy.”

Risk factors

See “Risk Factors” for a discussion of risks you should carefully consider before deciding to invest in our common shares.

Listing

We have applied to have our common shares listed on the Nasdaq under the symbol “SAIG.”

Reserved share program

At our request, the underwriters have reserved for sale, at the initial public offering price, up to shares offered by this prospectus for sale to our directors, officers and certain other persons associated with us. If these persons purchase reserved shares, it will reduce the number of shares available for sale to the general public. Any reserved shares that are not so purchased will be offered by the underwriters to the general public on the same terms as the other shares offered by this prospectus. The selling shareholders will not be eligible to participate in the reserved share program.

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In this prospectus, except as otherwise indicated, all information:

•

assumes no exercise by the underwriters of their option to purchase up to additional common shares from us and the selling shareholders;

•

assumes the filing and effectiveness of our amended and restated articles of incorporation in Ohio and the effectiveness of our amended and restated regulations, each of which will occur in connection with the consummation of this offering; and

•

gives effect to the completion of the Reclassification.

The number of common shares outstanding after giving effect to this offering excludes:

•

common shares issuable upon exercise of options outstanding as of March 31, 2019 (which are subject to a vesting condition that will be satisfied upon the effectiveness of the registration statement of which this prospectus forms a part), with a weighted average exercise price of $ ;

•

common shares subject to restricted stock units (“RSUs”) outstanding as of March 31, 2019 (which are subject to a vesting condition that will be satisfied upon the effectiveness of the registration statement of which this prospectus forms a part); and

•

common shares that may be granted under the Safe Auto Insurance Group, Inc. 2019 Omnibus Incentive Plan (the “Omnibus Incentive Plan”), including common shares underlying RSUs and performance stock units (“PSUs”) that we expect to grant to certain executive officers and other selected senior leaders and key employees in connection with this offering. See “Executive and Director Compensation—Omnibus Incentive Plan.”

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Summary Historical Financial and Other Data

The following tables set forth our summary statements of operations, balance sheet data and other data for the periods or as of the dates indicated. The summary statements of operations and balance sheet data as of and for the years ended December 31, 2018 and 2017 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary statements of operations and balance sheet data as of and for the three months ended March 31, 2019 and 2018 have been derived from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements except for the adoption of Financial Instruments – Overall (Subtopic 825-10), Recognition and Measurement of Finanical Assests and Financial Liabilities (“ASU 2016-01”). In the opinion of our management, our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus include all adjustments, consisting of only normal and recurring adjustments, necessary for a fair presentation of the information set forth herein. Our historical results are not necessarily indicative of the results expected for any future periods, and our results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results expected for the full fiscal year.

You should read the following information together with our consolidated financial statements and accompanying notes thereto included elsewhere in this prospectus, as well as “Selected Historical Consolidated Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

	Three Months Ended March 31,						Year Ended December 31,
	2019			2018			2018			2017
	(in thousands, except share and per share data)
Statements of Operations Data:

Revenues
Premiums earned	$	92,794		$	92,468		$	377,940		$	338,626
Policy service fee revenues		6,739			6,865			28,568			27,259
Net investment income		2,825			1,780			8,892			9,247
Net realized gains on investments⁽¹⁾		60			151			416			2,279
Net holding period gains (losses)⁽¹⁾		6,170			(62	)		—			—
Loss on sale and impairment of property and equipment		—			—			(1,103	)		(895	)
Other income		3,303			4,190			14,761			18,265
Total revenues	$	111,891		$	105,392		$	429,474		$	394,781

Expenses
Losses and loss adjustment expenses	$	58,214		$	61,038		$	251,734		$	234,433
Underwriting, acquisition, insurance and other expenses		53,492			46,461			151,806			133,702
Interest expense		217			181			799			671
Total expenses		111,923			107,680			404,339			368,806
Income (loss) before income taxes		(32	)		(2,288	)		25,135			25,975
Income tax expense (benefit)		(6	)		(553	)		4,983			6,962
Net income (loss)	$	(26	)	$	(1,735	)	$	20,152		$	19,013

Basic net income (loss) per common share, voting and non-voting	$	(0.83	)	$	(56.17	)	$	653.08		$	615.29
Diluted net income (loss) per common share, voting and non-voting		(0.83	)		(56.17	)		651.56			615.29

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	Three Months Ended March 31,						Year Ended December 31,
	2019			2018			2018			2017
	(in thousands, except share and per share data)
Pro Forma EPS Data⁽²⁾
Basic net income per common share, voting and non-voting							$
Diluted net income per common share, voting and non-voting							$

Balance Sheet Data (as of period end)
Total investments	$	304,804		$	301,060		$	284,963		$	296,496
Total assets		501,318			491,631			494,437			462,708
Loss and loss adjustment expense reserves		123,938			122,122			129,488			122,053
Unearned premium reserves		112,367			119,028			94,031			92,038
Debt and capital lease obligations		13,193			13,218			13,200			13,222
Total liabilities		314,156			304,434			310,336			269,954
Total shareholders’ equity	$	187,162		$	187,197		$	184,101		$	192,754

Other Financial and Operating Data
Loss ratio⁽³⁾		62.7	%		66.0	%		66.6	%		69.2	%
Expense ratio⁽⁴⁾		46.8	%		38.3	%		28.7	%		26.0	%
Combined ratio⁽⁵⁾		109.5	%		104.3	%		95.3	%		95.2	%
Book value per share (basic) (as of period end)⁽⁶⁾	$	6,068		$	6,059		$	5,966		$	6,238
Book value per share (diluted) (as of period end)⁽⁶⁾	$	6,068		$	6,059		$	5,883		$	6,238
Adjusted net income (loss)⁽⁷⁾	$	(4,076	)	$	(1,116	)	$	23,937		$	17,124
Adjusted combined ratio⁽⁷⁾		108.2	%		103.3	%		93.9	%		94.8	%
Return on equity⁽⁸⁾		0.0	%		(0.9	)%		10.7	%		10.3	%
Adjusted return on equity⁽⁹⁾		(2.2	)%		(0.6	)%		12.7	%		9.3	%

(1)

The Company adopted ASU 2016-01 on January 1, 2019 and applied it using the modified retrospective approach without restating prior period amounts.

(2)

Our board of directors declared a dividend to our shareholders totaling $21.6 million on November 26, 2018. The dividend was paid on January 18, 2019. Under applicable SEC guidance, dividends declared in the year preceding an initial public offering are deemed to be in contemplation of the offering with the intention of repayment out of offering proceeds to the extent that the dividends exceeded earnings during such period. Pro forma earnings per share for 2018 give effect to the sale of the number of shares the proceeds of which would have been necessary to pay the dividend amount that is in excess of earnings during the year ended December 31, 2018.

For purposes of calculating pro forma earnings per share for the year ended December 31, 2018, we used the initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover of this prospectus.

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The following table presents the computation of pro forma basic and diluted earnings per share:

	For the year ended December 31, 2018
	Basic				Diluted
(in thousands, except share and per share data)	Voting Common Shares		Non- voting Common Shares		Voting Common Shares		Non- voting Common Shares
Net income attributable to us	$	198	$	19,954	$	197	$	20,227
Weighted average number of common shares outstanding		303		30,554		303		31,045
Shares issued in offering to pay dividends in excess of earnings^(a)
Pro forma weighted average shares outstanding
Pro forma earnings per share	$		$		$		$
(a) Calculation of shares issued in offering to pay dividends in excess of earnings:
Dividends declared in last twelve months					$	212	$	21,379
Net income attributable to us in the last twelve months						197		20,227
Dividends in excess of earnings						15		1,152
Assumed IPO price					$		$
Shares issued in the IPO to pay dividends in excess of earnings

(3)

We define loss ratio as the ratio (expressed as a percentage) of losses and loss adjustment expenses (“LAE”) to premiums earned at period end. For more information on our use of this ratio and the other ratios described below, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Performance Metrics.”

(4)

We define expense ratio as the ratio (expressed as a percentage) of underwriting, acquisition, insurance and other expenses, net of policy service fee revenues and other income, to premiums earned at period end.

(5)

We define combined ratio as the sum of the loss ratio and the expense ratio.

(6)

We define book value per share as total shareholders’ equity as of the end of the period divided by the weighted average number of common shares outstanding (basic and diluted) as of the end of the period.

(7)

In addition to our net income and combined ratio determined in accordance with GAAP, we present adjusted net income and adjusted combined ratio in this prospectus to evaluate our performance and the efficiency of our business. We believe that adjusted net income and adjusted combined ratio are important supplemental measures of our performance because:

•

We believe that these measures are frequently used by securities analysts, investors and other interested parties in their evaluation of insurance companies, many of which present these measures when reporting their results;

•

We believe that these measures are helpful in highlighting operating trends, because they exclude the results of factors or decisions that are outside the control of management or that can differ significantly from company to company and from period to period; and

•

Our results may vary significantly from period to period due to unpredictable or unusual events or due to gains or losses that we do not believe reflect our core operating performance, and these items may have a disproportionate effect in a given period, affecting comparability of our results.

Adjusted net income and adjusted combined ratio are not measures of financial performance under GAAP and should not be considered as alternatives to net income, combined ratio or any other performance measure derived in accordance with GAAP. The use of adjusted net income instead of net income and adjusted combined ratio instead of combined ratio have limitations as analytical tools.

Management compensates for these limitations by relying primarily on our GAAP results and by using adjusted net income and adjusted combined ratio as supplements to provide a more complete understanding of the factors and trends affecting our business than GAAP results alone. Because not all companies use identical calculations, our presentation of these measures may not be comparable to other similarly titled measures of other companies, limiting their usefulness as comparative measures.

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Adjusted net income (loss) represents net income (loss) as adjusted for the items presented in the table below. A reconciliation of net income (loss) to adjusted net income (loss), which is included in calculating adjusted return on equity, is as follows:

	Three Months Ended March 31,						Year Ended December 31,
	2019			2018			2018			2017
	($ in thousands)
Net income (loss)	$	(26	)		(1,735	)	$	20,152		$	19,013
Elimination of discontinued distribution channel^(a)		16			110			(288	)		2,167
Net realized gains on investments^(b)		(60	)		151			(416	)		(2,279	)
Net holding period gains (losses)^(c)		(6,170	)		(62	)		—			—
Proceeds from company-owned life insurance^(d)		—			—			—			(4,000	)
Non-cash executive compensation^(e)		1,197			786			1,722			2,827
Other executive compensation^(f)		(110	)		(24	)		3,773			532
Tax effect of adjustments^(g)		1,077			(164	)		(1,006	)		(1,136	)
Adjusted net income (loss)	$	(4,076	)	$	(1,116	)	$	23,937		$	17,124

(a)

Represents the elimination of the impact on our pre-tax income (loss) of our independent agency channel business, which began operations in 2015 and ceased operations in 2017.

(b)

Represents the cumulative amount of realized gains and losses resulting from sales of our investment securities as well as changes in the value of our company-owned life insurance (“COLI”) assets for the years ended December 31, 2018 and 2017. We typically hold our fixed maturity investments until maturity and hold other investments as long-term investments, and we do not typically rely on sales of investments prior to maturity as part of our investment strategy. COLI assets are not part of our core investment activities that provide funds to meet our insurance obligations to customers. While realized investment gains and losses are material to our operations over the long term, the determination to realize investment gains or losses in any period may be subject to management’s discretion and is independent of the insurance underwriting process. We believe that the level of realized investment gains or losses and changes in the value of our COLI assets for any particular period may not fully or accurately indicate the performance of our ongoing underlying business operations in that period. Accordingly, we include an adjustment in our calculation of adjusted net income (loss) for realized gains and losses from sales of investments and changes in COLI assets.

(c)

Represents the amount of change in fair value of equity securities as well as changes in the value of our COLI assets. Effective January 1, 2019, we adopted ASU 2016-01, which required changes in the fair value of equity securities to be recognized as a component of net income. While changes to fair value of equity securities are material to our operations over the long term, the change in fair value in any period is independent of the insurance underwriting process. We believe that the changes in fair value of our equity securities and changes in the value of our COLI assets for any particular period may not fully or accurately indicate the performance of our ongoing underlying business operations in that period. Accordingly, effective January 1, 2019, we include an adjustment in our calculation of adjusted net income (loss) for changes in fair value of equity securities and changes in COLI assets. Changes in the value of COLI assets for the three months ended March 31, 2018 have been reclassified to net holding period gains (losses) to conform to the current period presentation.

(d)

Represents benefits from COLI policies taken out by us relating to certain of our executive and former executive employees and board members received upon the death of the insured individuals.

(e)

Represents non-cash share-based compensation expense for awards issued under our non-qualified compensatory share compensation plan and other non-cash executive long-term incentive compensation expense accruals. For more information about our long-term incentive compensation program, see “Executive and Director Compensation” and Note 1 to our consolidated financial statements included elsewhere in this prospectus.

(f)

Represents other executive compensation expense recognized and paid, including expenses related to the termination of our 2006 Incentive Equity Plan in 2014, certain cash bonuses paid to our CEO, and certain cash bonuses paid to holders of options issued under our current share option plan.

(g)

Represents the accumulated tax impact from the above adjustments. The federal statutory rate enacted for the applicable year was applied to all adjustments with the exception of the proceeds from COLI, which are not taxed for federal income tax purposes.

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Adjusted combined ratio represents the combined ratio as adjusted for the items presented in the table below. A reconciliation of adjusted combined ratio to combined ratio is as follows:

	Three Months Ended March 31,						Year Ended December 31,
	2019			2018			2018			2017
Combined ratio		109.5	%		104.3	%		95.3	%		95.2	%
Elimination of discontinued distribution channel^(a)		0.0	%		(0.1	)%		0.1	%		(0.6	)%
Proceeds from company-owned life insurance^(b)		0.0	%		0.0	%		0.0	%		1.2	%
Non-cash executive compensation^(c)		(1.3	)%		(0.9	)%		(0.5	)%		(0.8	)%
Other executive compensation^(d)		0.0	%		0.0	%		(1.0	)%		(0.2	)%
Adjusted combined ratio		108.2	%		103.3	%		93.9	%		94.8	%

(a)

Represents the elimination of the impact on our combined ratio of our independent agency channel business, which began operations in 2015 and ceased operations in 2017.

(b)

Represents benefits from COLI policies taken out by us relating to certain of our executive and former executive employees and board members received upon the death of the insured individuals.

(c)

(d)

(8)

We define return on equity as net income (loss) as a percentage of the average of beginning and ending shareholders’ equity during the period.

(9)

We define adjusted return on equity as adjusted net income (loss) as a percentage of the average of beginning and ending shareholders’ equity during the period.

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RISK FACTORS

Investing in our common shares involves a high degree of risk. You should consider carefully the risks and uncertainties described below and the other information in this prospectus, including our consolidated financial statements and accompanying notes included elsewhere in this prospectus, before deciding to invest in our common shares. The risks and uncertainties below are not the only ones facing us. If any of the following risks or uncertainties actually occurs, our business, prospects, financial condition, results of operations or cash flow could suffer, possibly materially. In that event, the market price of our common shares could decline, and you could lose all or part of your investment.

Risks Related to Our Business

Negative developments affecting the personal lines insurance industry could materially adversely affect our business, financial condition or results of operations.

Substantially all of our revenues to date have been generated from sales of personal lines insurance policies, specifically personal automobile insurance policies. Because we are concentrated in this area, negative developments in the market for personal automobile insurance, whether related to social, economic, competitive or regulatory conditions, could reduce demand for our products and have a more pronounced effect on us as compared to more diversified companies and could thereby negatively affect our results of operations. Such negative developments could include changes in regulations, innovations in the automobile space, such as driverless cars, potentially disruptive emerging business models in the automobile usage and insurance space, including transportation network companies and usage-based insurance, new competitors entering the market or increased competition from existing providers and economic downturns.

Intense competition could impair our ability to attract new customers, retain existing customers or successfully enter new markets.

The personal automobile insurance business is highly competitive, with a wide range of insurers seeking a share of the market. We compete with insurers that sell personal automobile insurance policies through various outlets, including independent agencies, as well as insurers that, like us, predominately sell such policies directly to their customers. Therefore, we believe that our competition comes not only from large national companies, but also from smaller specialty insurers and independent agents that operate in a specific region or single state in which we also operate. We compete primarily on the basis of price, product distribution, reputation and brand recognition, financial strength, coverage, payment terms and speed of claims payments and customer service. Many of our competitors are significantly larger companies, have more capital, greater resources and more advanced technology systems and processes than we have, offer a broader range of products at lower prices, have greater market recognition than we do and sell their products through widespread agency networks enabling them to access a larger range of customers, all of which may impair our ability to attract new customers and retain existing customers or enter new markets in which our competitors already have an established presence and adversely affect our profitability. In recent years, the insurance industry has undergone increasing consolidation, which may further intensify competition. See “Business—Competition.”

Similar to other industries, the insurance industry is undergoing rapid and significant technological and other change. Traditional insurance industry participants, technology companies, “InsurTech” start-up companies (the number of which has increased significantly in recent years) and others are focused on using technology and innovation to alter business models and cause other potentially disruptive changes in the insurance industry. If we do not keep pace with and adapt to technological and other changes impacting the insurance industry, it could harm our ability to compete, decrease the value of our products to insureds and agents, and materially adversely affect our business.

Our future success depends on our ability to successfully execute our business plan and implement our growth strategy.

Our future revenues depend on our ability to successfully execute our existing plan and our growth strategy. We may not be successful in doing so, and even if we are, we may not realize, in full or in part, the anticipated benefits we expect to achieve from our operations and growth plans. We intend to grow our business in the future by continuing to enhance our direct-to-consumer capabilities, by entering new states and regions, by investing in technology, data analytics capabilities and advertising and by exploring additional products or revenue streams. However, we may not be able to achieve the levels of growth we have experienced in recent

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periods. For example, in recent periods, we experienced a decrease in our policies in force due to a decline in new policies sold as we began to experience a softening in demand in certain states for the primary products we sell. We expect this trend to persist for the near term. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Certain Factors Affecting Our Results of Operations” and “—Results of Operations.” Although we intend to expand into additional states, we may determine for business, strategic or regulatory reasons that it is no longer in our interest to do so, or we may not be successful in doing so. Our success depends on our deep understanding of our industry and our markets. In order to grow our business, we will need to develop a similar understanding of those new markets and offerings and the associated business and regulatory challenges. In addition, we may not be able to meet our capital needs, expand our IT or other systems effectively, allocate our human resources optimally, identify qualified employees or incorporate effectively the components of any businesses or assets we may acquire in our efforts to achieve growth. Failure to achieve our business and growth objectives or to manage our business effectively could materially adversely affect our business, prospects, financial condition or results of operations.

We must continue to develop and maintain a brand that is recognized and trusted by consumers in order to succeed.

Because insurance products are intangible, it is critical to our business that consumers recognize and trust our brand. We undertake distinctive advertising and marketing campaigns and other efforts to improve brand recognition, enhance consumers’ perceptions of us, generate new business and increase the retention of our current customers. We believe that optimizing our spending and improving the effectiveness of our advertising and marketing campaigns relative to those of our competitors is particularly important given the significance of brand and reputation in the automobile insurance marketplace and the continuing high level of advertising and marketing efforts and related expenditures within the market. We have undertaken and intend over time to continue to undertake significant investments in our advertising and marketing campaigns, particularly as we seek to enter new markets. If our campaigns are unsuccessful or are less effective than those of competitors, or if we fail to make sufficient investments in our campaigns, it may be difficult for us to maintain and grow our consumer base, which could materially adversely affect our business, prospects, financial condition or results of operations. Even if our campaigns are successful, if we are unable to provide competitive levels of price, service and support to our customers or respond to evolving changes in the industry, our brand may be negatively perceived by consumers or otherwise be adversely affected.

The customer base for our products may expose us to higher levels of customer turnover compared to other personal automobile insurance carriers.

We principally sell our products to budget-conscious, often financially-constrained individuals seeking a low-cost solution for complying with state automobile insurance requirements. Our customers may have lower average income or assets and less stable employment than many other automobile insureds and may be more significantly affected by economic downturns than other automobile insureds. As a result, we may experience higher levels of customer turnover than other automobile insurance carriers. These factors may be exacerbated in an economic downturn, during which our customer base may be more vulnerable to increases in the unemployment rate. While we expect a certain level of customer turnover in any given economic environment, higher than expected customer turnover could result in increased costs and decreased revenues and thereby adversely affect our business, financial condition or results of operations.

Our results may fluctuate as a result of cyclical changes in the personal lines insurance industry and at the macroeconomic level.

The personal lines insurance industry historically is cyclical in nature, which has in the past and may in the future cause fluctuations in our results of operations. For instance, adverse economic conditions may disproportionately impact our customers, and many may choose to reduce their coverage or go uninsured during a weak economy, reducing demand for the policies we offer. Moreover, weak economic conditions could reduce demand for other insurance products that we sell or may in the future sell or other business activities that we may undertake as we grow our business. Conversely, favorable economic conditions or periods of lower gas prices may correlate with an increase in miles driven and an increase in claim frequency, which can negatively impact our profitability. In addition, employment rates, the rate of sales of used vehicles, consumer confidence, increased competition and other factors affect our customers’ automobile insurance purchasing habits. The personal automobile insurance business alternates between hard and soft market conditions. A hard market is

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generally characterized by carriers raising premiums, reducing products, tightening contractual terms and restricting their underwriting capacity. A soft market is generally characterized by carriers lowering premiums, expanding products or loosening contractual terms and expanding underwriting capacity. Hard or soft markets may arise at the national, state or local level or be specific to the personal automobile insurance line or the insurance industry generally. For example, in recent periods, we began to experience a softening in demand in certan states for the primary products we sell and other market factors that may indicate a soft market in our regions. We cannot predict the timing or duration of changes in the market cycle. These cyclical patterns may cause our revenues and profitability to fluctuate.

Our business is concentrated in a limited number of states and regions.

While we are licensed to underwrite insurance in 20 states, we generate a significant portion of our revenues from a small number of these states. The percentage of our premiums earned that relate to policies issued to customers in Ohio, Pennsylvania, Kentucky, Indiana and Georgia was 20.0% ($75.6 million), 15.3% ($57.6 million), 13.0% ($49.2 million), 9.5% ($35.9 million) and 8.2% ($31.0 million), respectively, for the year ended December 31, 2018. The concentration of our operations in these markets exposes us to greater risks than if our operations were more geographically diverse. As a result, negative developments in the prevailing regulatory, legal, economic, demographic, competitive and other conditions in these states, or the Midwest or Mid-Atlantic regions, generally, could materially adversely affect our business, financial condition or results of operations.

If we are unable to optimize our web and mobile platforms, our business, financial condition or results of operations may be adversely affected.

Over 85% of our insurance quotes were initiated online, and approximately 60% of our new policies were written online with no human touch points on our part during the year ended December 31, 2018. Our brand, reputation and ability to attract consumers therefore depend to a high degree on the reliable performance of our technology infrastructure and content delivery, particularly given our strategic focus on providing fast quotes to customers and flexibility in managing their polices. Our systems may not be adequately designed with the necessary reliability and redundancy to avoid performance delays or outages that could be prolonged and harmful to our business. For example, if our website or mobile application is unavailable when users attempt to access it, or if either does not load as quickly as expected, users may not return as often in the future, or at all.

Additionally, the number of people who access the internet through mobile devices, including mobile phones, smartphones and handheld computers such as notebooks and tablets, has increased dramatically in past years. The smaller screen size, functionality and memory associated with these alternative devices may make the use of our websites and purchasing our products more difficult. The versions of our websites developed for these devices may not be compelling to consumers. In addition, it is time consuming and costly to keep pace with rapidly evolving technology and consumer preferences.

Our consumer base is highly mobile centric, and the success of our business depends on our ability to maintain and enhance our mobile application. We launched our mobile application at the end of 2013 and have periodically updated it to account for advances in technology. As new mobile devices and platforms are released, it is difficult to predict the problems we may encounter in developing applications for alternative devices and platforms, and we may need to devote significant resources to the creation, support and maintenance of such applications. If we are unable to attract consumers to our products through these devices or are slow to develop a version of our website or mobile application that is more compatible with alternative devices or a mobile platform, we may fail to capture a significant share of consumers using these devices or applications, which could adversely affect our business, financial condition or results of operations.

We may not price our products accurately.

Our business, financial condition and results of operations depend on our ability to price and set premium rates to adequately account for risks of loss. Pricing adequacy is necessary to generate sufficient premiums to exceed losses and LAE and to earn a profit.

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Pricing our insurance products involves the acquisition and analysis of historical accident and loss data, and the projection of future accident trends, loss costs, expenses, and inflation trends, among other factors, in many different markets. As a result, our ability to price accurately is subject to a number of risks and uncertainties, including, without limitation:

•

our ability to conduct a complete and accurate analysis of available data;

•

the availability and accuracy of sufficient reliable data from third parties;

•

our ability to predict changes in certain operating expenses with reasonable accuracy;

•

the successful and uninterrupted functioning of our data warehouse and information technology;

•

our ability to predict policyholder retention accurately, particularly given direct acquisition economics, the cyclicality of our business and the sensitivity of many of our consumers to changes in economic conditions;

•

our ability to identify and respond to evolving customer trends on a timely basis;

•

the uncertainties that inherently characterize estimates and assumptions;

•

our ability to timely recognize changes in trends and to predict both the severity and frequency of future losses with reasonable accuracy, specifically, the costs of automobile repair parts and labor and medical costs;

•

the development, selection, and application of appropriate rating formulae or other pricing methodologies;

•

our ability to develop new or enhance existing pricing strategies, and the success of those efforts;

•

our ability to implement rate changes and obtain any related required regulatory approvals on a timely basis;

•

unanticipated legislative, regulatory or judicial actions;

•

the occurrence and severity of catastrophic events, such as hurricanes, hail storms, other severe weather, and terrorist events;

•

our understanding of the impact of ongoing changes in our claim settlement practices;

•

our ability to respond to new advancements in automobile features, technologies and systems; and

•

changing driving patterns.

Our inability to adequately or accurately account for these risks and uncertainties may result in our pricing being based on inadequate or inaccurate data or inappropriate analyses, assumptions or methodologies and may cause us to estimate incorrectly future changes in the frequency or severity of claims. Consequently, we could underprice risks, which would negatively affect our profit margins, or we could price risks higher than our competitors do, which could reduce our sales volume and competitiveness. In either event, these pricing risks may adversely affect our business, financial condition or results of operations. In addition, underpricing insurance policies over time could erode the surplus of our insurance subsidiaries, constraining the ability of insurance subsidiaries to write new business and dividend funds to us.

Failure of our information technology and telecommunications systems or exposure to cyber-attacks or other security breaches could disrupt our operations and cause us to lose business.

Our business depends on the successful and uninterrupted functioning of our information technology and telecommunications systems. Among other things, we rely on these systems to support our direct marketing operations, process new and renewal business, provide customer service, make claims payments, facilitate collections and cancellations and handle other policy administration processes, such as adjusting claims, quoting and printing, and billing and mailing policies, endorsements and renewal notices. These systems also enable us to analyze and refine our pricing and optimize our customer acquisition efforts, perform actuarial and other modeling analyses and perform other functions necessary for operating our business, including financial reporting, budgeting and forecasting. Our information systems may be vulnerable to physical or cyber-attacks, computer viruses or other computer-related attacks, programming errors and similar disruptive problems. In some

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cases, such physical and electronic break-ins, cyber-attacks or other security breaches may not be immediately detected. In addition, we could experience a failure of one or more of these systems, our employees, agents or third-party vendors could fail to monitor and implement enhancements or other modifications to a system in a timely and effective manner, or our employees, agents or third-party vendors could fail to complete all necessary data reconciliation or other conversion controls when implementing a new software system or implementing modifications to an existing system. Some of our systems may include or rely on third-party systems not located on our premises or under our control.

We maintain some redundant systems or facilities for our information technology systems to help maintain functionality and reduce the risk of significant disruptions of our operations. However, at this time, our information technology systems are not fully redundant. Events such as natural catastrophes, terrorist attacks, industrial accidents, ransomware attacks or computer viruses may cause our systems to fail or be inaccessible for extended periods of time. While we have implemented business contingency plans and other reasonable plans to protect our systems, sustained or repeated system failures or service denials could severely limit our ability to write and process new and renewal business, provide customer service, pay claims in a timely manner or otherwise operate in the ordinary course of business. Although we currently maintain cyber insurance, recoveries under the insurance coverage that we currently maintain or may obtain in the future may not completely offset lost revenues or increased costs resulting from a disruption of our operations.

Failure to protect the confidentiality of employee and consumer information or proprietary business information could lead to legal and reputational damage and materially adversely affect our business, financial condition or results of operations.

Our operations depend on the reliable and secure collection, processing, storage, disclosure, disposal, transmission and use of confidential employee and consumer information, including credit card numbers and financial data, along with other proprietary data and information in our computer systems and networks. In addition, we and certain third-party vendors and agents routinely transmit and receive personal, confidential and proprietary data and information by electronic means and are subject to numerous data privacy laws and regulations enacted in the jurisdictions in which we do business. These systems may fail to operate properly or become disabled as a result of events or circumstances wholly or partly beyond our control. For example, one of the insurance agents through which we previously sold automobile insurance policies (and which continues to service renewals of these policies) recently experienced a data breach involving customer information, and although we do not own the customer information subject to that breach, we cannot assure you that other third parties with whom we do business will not experience future breaches involving our customer information.

Despite our implementation of a variety of security measures, we are increasingly exposed to the risk that our computer systems or the computer systems of our third-party vendors or agents could be subject to cyber-attacks and unauthorized access, such as physical and electronic break-ins or unauthorized tampering. It is possible that an employee, contractor or representative could, intentionally or unintentionally, disclose or misappropriate personally identifiable information or other confidential information. The risk of hacking and cyber-attacks has increased, as has the sophistication of such attacks, including ransomware and email phishing schemes targeting employees to disclose or provide access to their credentials. Additionally, our employees, contractors, third-party vendors and agents may use portable computers or mobile devices which may contain similar information to that in our information systems, and these devices can be lost, stolen or damaged, resulting in data breaches or unauthorized access. Any compromise of the security of our or our third-party vendors’ or agents’ information systems, through cyber-attacks or for any other reason that results in inappropriate disclosure of personally identifiable information, could result in legal claims, regulatory scrutiny and liability, reputational damage, the incurrence of costs to eliminate or mitigate further exposure, the loss of customers or affiliated advisors, reputational harm or other damage to our business. In addition, the trend toward general public notification of such incidents could increase the harm to our business and reputation if attempted security breaches become public knowledge.

In some cases, we may be unaware of emerging threats and the magnitude of their effects, or we may not immediately detect a cyber incident, which could increase our exposure. These risks may increase in the future as we continue to expand internet and mobile strategies, develop additional remote connectivity solutions to serve our employees and customers, and continue to build and maintain our information technology and telecommunications systems.

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If our emails are not delivered and accepted or are routed by email providers less favorably than other emails, or if our sites are not accessible or treated disadvantageously by internet service providers, our business may be substantially harmed.

If email providers or internet service providers implement new or more restrictive email or content delivery or accessibility policies, including with respect to net neutrality, it may become more difficult to deliver emails to consumers or for consumers to access our websites and services. For example, certain email providers may categorize our emails as “promotional,” and these emails may be directed to an alternate, and less readily accessible, section of a consumer’s inbox. If email providers materially limit or halt the delivery of our emails, or if we fail to deliver emails to consumers in a manner compatible with email providers’ email handling or authentication technologies, our ability to contact consumers through email could be significantly restricted. In addition, if we are placed on “spam” lists or lists of entities that have been involved in sending unwanted, unsolicited emails, our results of operations and financial condition could be substantially harmed. Further, if internet service providers prioritize or provide superior access to our competitors’ content, it may adversely affect our business, financial condition or results of operations.

We are subject to a number of risks relating to the third-party processors and service providers on which we rely to support portions of our business.

We outsource certain portions of our operations to third parties. A number of our critical business functions are performed by third-party vendors. For example, we rely on a third-party vendor to provide payment processing services for certain payment methods, including credit and debit cards. Most of our agreements with third-party vendors are terminable on little or no notice. If any third-party vendor we rely on terminates or fails to perform its obligations under its agreement with us or otherwise becomes unwilling or unable to provide services to us, we may be unable to find a suitable replacement in a timely manner, which could disrupt our business. Even if we found a suitable replacement, we may face higher costs for these services.

Additionally, payment processors are subject to payment card association operating rules, certification requirements, rules governing electronic funds transfers and payment card industry security standards. Failing to comply with those standards may violate payment card association operating rules, federal and state laws and regulations, and the terms of our contracts with payment processors. Further, there is no guarantee that compliance with such rules and standards will prevent illegal or improper use of our payment systems or the theft, loss or misuse of data pertaining to credit and debit cards, card holders and transactions. If our third-party payment processor fails to adequately control fraudulent credit card transactions, we may face civil liability, diminished public perception of our security measures, and significantly higher credit card-related costs, each of which could harm our business, financial condition or results of operations.

Market fluctuations and changes in interest rates can have significant and negative effects on our investment portfolio.

Like many insurance companies, we invest our reserves and surplus in various securities and investment products, and the income we generate from these investments is an important part of our earnings. Our results of operations depend in part on the performance of our invested assets. As of March 31, 2019, our total investments and cash and cash equivalents were $334.0 million, and approximately 70% of our investment portfolio (by book value) and cash and cash equivalents was invested in fixed maturity securities, approximately 12% in equity securities, approximately 9% in alternative investments in limited partnerships (“LPs”) and limited liability companies (“LLCs”) and approximately 9% in cash and cash equivalents. However, these percentages have varied in the past and will likely continue to vary in the future. For example, in April 2019 we changed our equity security investment strategy by liquidating the majority of our equity investment portfolio, which was largely comprised of exchange-traded funds concentrated in the S&P 500 index and value-oriented strategies, and purchasing various exchange-traded funds that invest primarily in municipal bonds and preferred stocks. Our investments are subject to general economic conditions and market risks as well as risks inherent to particular securities. For example, certain risks are inherent in connection with fixed maturity securities, including loss upon default and price volatility in reaction to changes in interest rates and general market factors. An increase in interest rates lowers prices on outstanding fixed maturity securities, and any sales of those investments we make during a period of increasing interest rates may result in losses. Conversely, a decrease in interest rates may lower the investment income we earn on future investments in fixed maturity securities. We also invest in marketable equity securities. These securities are carried on our balance sheet at fair market value and are subject

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to potential losses and declines in market value. Additionally, our alternative investments in LPs and LLCs are relatively illiquid. The reported values of our relatively illiquid types of investments are based on subjective factors and may not necessarily reflect the current market price for the asset even though these assets are frequently marked to market. If we require significant amounts of cash on short notice in excess of our normal cash requirements, we may have difficulty selling these investments in a timely manner or may be forced to sell them for an amount less than we would otherwise have been able to realize, which could adversely affect our business, financial condition or results of operations.

The value of our overall investment portfolio is subject to the risk that certain investments may default or become impaired due to deterioration in the financial condition of one or more issuers of the securities we hold, or due to deterioration in the financial condition of an insurer that guarantees an issuer’s payments on such investments. Downgrades in the credit ratings of fixed maturities may also have a significant negative effect on the market valuation of such securities.

Although we seek to preserve our capital, we cannot be certain that our investment objectives will be achieved, and results may vary substantially over time. In addition, although we seek to employ investment strategies that are not correlated with our insurance exposures, losses in our investment portfolio may occur at the same time as underwriting losses and, therefore, exacerbate the adverse effect of the losses on us.

Additionally, we could be forced to sell investments during periods of adverse market conditions to meet our liquidity requirements. We seek to manage the duration of our investment portfolio based on the duration of our loss and loss adjustment expense reserves (“LAE reserves”) to ensure sufficient liquidity to pay policyholder claims and avoid having to liquidate investments to fund claims. Risks such as inadequate loss and LAE reserves or unfavorable trends in litigation could potentially result in the need to sell investments to fund these liabilities. We may not be able to sell our investments at favorable prices or at all.

Changes in the transportation industry and automobile technology could materially and adversely affect our business, financial condition or results of operations.

In recent years, the transportation industry has experienced rapid changes in technology and consumer demands. Developments such as car-sharing services, ride-sharing applications, including those from transportation network companies, such as Uber Technologies, Inc. and Lyft, Inc., driverless cars and increased availability and usage of public transportation could impact consumer demand for the purchase of automobiles. A reduction in the number of automobiles purchased by consumers could lead to reduced demand for our personal automobile insurance and increased competition within our industry. If we are unable to anticipate and respond to these developments in the transportation industry, it could have a materially adverse effect on our business, financial condition or results of operations.

Our losses and loss adjustment expenses could exceed our reserves.

We record reserve liabilities for the estimated future payment of losses and LAE for both reported and unreported claims. The establishment of appropriate reserves is an inherently uncertain process, involving statistical projections of what we expect to be the cost of the ultimate settlement and administration of claims based on historical claims information, estimates of future trends in claims and other variable factors such as inflation. Past experience, adjusted for the effects of current developments and anticipated trends, may not be sufficiently predictive of future events and actual results may deviate from our reserve estimates due to a number of factors, such as:

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the time it may take once a claim is received to fully appreciate the extent of the covered losses suffered by the insured, causing estimates of loss associated with specific claims to increase over time;

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new theories of liability that may be enforced retroactively from time to time by courts or modifications to contract terms or other policy conditions imposed by courts; and

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increasing frequency of claims, which could cause us to incur greater claims handling costs regardless of whether we ultimately have any liability for those claims.

Due to the inherent uncertainty in estimating reserves, it has been necessary in the past, and likely will be necessary in the future, to revise estimated liabilities as reflected in our loss and LAE reserves. The amount of any such increase or decrease in loss and LAE reserves is recognized in earnings. Such adjustments to our reserves have materially adversely affected our net income in the past and could have a material impact in future

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periods. While we use a number of analytical reserve development techniques to project future loss development, reserves have been and may be significantly affected by routine changes in claims organization structures, loss cost trends or loss development factors that were relied on in setting the reserves.

We may not be able to retain our management team and key employees or attract and retain quality talent to compete in the marketplace.

Our future success will depend in part on the continued service of our management team and key employees as well as our ability to attract, develop, motivate and retain experienced personnel who are knowledgeable about our business. We have a particular need to attract and retain highly-skilled technology professionals and we may face challenges in doing so. The pool of talent from which we actively recruit is limited and may fluctuate based on market dynamics specific to our industry and independent of overall economic conditions. As such, higher demand for employees having the desired skills and expertise could lead to increased compensation expectations for existing and prospective personnel, making it difficult for us to retain and recruit key personnel and maintain labor costs at desired levels. Only our President and CEO has an employment agreement with us and is subject to a non-compete agreement. Should any of our key executives terminate their employment with us, or if we are unable to retain and attract talented personnel, we may be unable to maintain our current competitive position in the specialized markets in which we operate and may be prevented from fully implementing our business strategy, which could negatively affect our ability to grow our business and operate efficiently and profitably. See “Management—Directors and Executive Officers.”

We depend on search engines and other online advertising sources to attract consumers to our website.

Our success depends on our ability to attract online consumers to our website and convert their visits into quote requests in a cost-effective manner. We depend, in part, on search engines, display advertising, social media, email, content-based online advertising and other online sources for our website traffic. We are included in search results as a result of paid search listings, where we purchase specific search terms that result in the inclusion of our advertisements, and, separately, organic searches that depend on the content on our sites.

Search engines, social media platforms and other online sources often revise their algorithms, introduce new advertising products and modify existing products or services. If one or more of the search engines or other online sources on which we rely for website traffic were to modify their general methodology for how they display our advertisements, resulting in fewer consumers clicking through to our website, our business could suffer. In addition, if our online display advertisements are no longer effective or are not able to reach certain consumers due to consumers’ use of ad-blocking software, our business could suffer.

In addition, if one or more of the search engines or other online sources on which we rely for purchased listings modifies or terminates its relationship with us, our revenues could drop or our expenses could rise, we could lose consumers and traffic to our website could decrease, any of which could materially adversely affect our business, financial condition or results of operations.

Changes in the regulation of conducting business online or through mobile devices could adversely affect our business.

Laws, rules and regulations governing internet communications, advertising and e-commerce are dynamic, and the nature and extent of future government regulation is uncertain. Federal and state regulations govern various aspects of our online business, including intellectual property ownership and infringement, trade secrets, the distribution of electronic communications, marketing and advertising, user privacy and data security, search engines and internet tracking technologies. In addition, changes in laws or regulations that adversely affect the growth, popularity or use of the internet, including potentially the recent repeal in the United States of net neutrality, could decrease the demand for our offerings and increase our cost of doing business. Future taxation on the use of the internet or e-commerce transactions could also be imposed. Existing or future regulation or taxation could hinder growth in or adversely affect the use of the internet generally, including the viability of internet e-commerce, which could reduce our revenues, increase our operating expenses and expose us to significant liabilities. In addition, regulations may be imposed from time to time that may require us to make our website compliant with applicable laws and regulations, including those related to website accessibility.

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Federal, state and international laws regulating consumer privacy impose certain obligations on marketers, which could reduce our ability to expand our business.

We make telephone calls and send emails to consumers who request insurance quotes through our website. The United States regulates marketing by telephone and email. The Telephone Consumer Protection Act (the “TCPA”) prohibits companies from making telemarketing calls to numbers listed in the Federal Do-Not-Call Registry, prohibits telemarketing calls to mobile phone numbers using automatic telephone dialing systems (“autodialers”) without appropriate consent and imposes other obligations and limitations on making phone calls and sending text messages to consumers. Furthermore, the Controlling the Assault of Non-Solicited Pornography And Marketing Act regulates commercial email messages and specifies penalties for the transmission of commercial email messages that do not comply with certain requirements, such as providing an opt-out mechanism for stopping future emails from senders. Additionally, certain states, including California, have recently enacted stringent new regulations requiring companies to implement and maintain security procedures and practices to protect personal data, and other states may enact similar privacy laws in the future. We and the third-party insurers we promote through our insurance agency need to comply with such laws and any associated rules and regulations. Additional or modified laws and regulations, or interpretations of existing, modified or new laws, regulations and rules, could prohibit or increase the cost of engaging with consumers and impair our ability to expand the use of our products to more users. Failure to comply with obligations and restrictions related to telephone, text message and email marketing could subject us to lawsuits, fines, statutory damages, consent decrees, injunctions, adverse publicity and other losses that could harm our business. In fact, over the past several years there has been a sustained increase in litigation alleging violations of the TCPA, which has increased the exposure of companies that operate telephone and text messaging campaigns to class action litigation. In addition, in recent years, as a result of rulings by the Federal Communications Commission and courts, there has been significant uncertainty as to what type of equipment may qualify as an autodialer so as to trigger certain TCPA restrictions and requirements, as well as other issues relating to potential TCPA liability. If we or the insurers that we promote through our insurance agency become subject to such litigation, it could result in substantial costs to us and materially adversely affect our business.

We and our insurance subsidiaries are subject to comprehensive regulation that may restrict our ability to earn profits.

We are subject to comprehensive regulation by governmental agencies in Ohio where our insurance subsidiaries are domiciled and in those states where we conduct business. Certain states impose restrictions or require prior regulatory approval of certain corporate actions, which may adversely affect our ability to operate, innovate, obtain necessary rate and forms adjustments in a timely manner or grow our business profitably. These laws and regulations provide safeguards for policy owners and are not intended to protect the interests of shareholders. Our ability to comply with these laws and regulations, and to obtain necessary regulatory approval in a timely manner, is and will continue to be critical to our success.

Required Licensing. We operate under licenses issued by various state insurance authorities. Such licenses are issued only after we file an appropriate application and satisfy prescribed criteria. We must obtain the appropriate new license before we can expand into a new state. If a regulatory authority denies or delays granting such new license, our ability to enter that market quickly can be substantially impaired or precluded completely.

Transactions Between Insurance Companies and Their Affiliates. We operate as an insurance holding company. Transactions between our insurance subsidiaries and other members of our holding company system generally must be disclosed to the applicable state regulators, and prior approval of the applicable regulator generally is required before any material or extraordinary transaction may be consummated. State regulators may refuse to approve or delay approval of such a transaction, which may impact our ability to innovate or operate efficiently. Transactions subject to these requirements include sale, investment, loan, guarantee and reinsurance transactions and management agreements, service agreements, expense sharing arrangements and other contracts providing for the rendering of services on a regular, systematic basis.

Regulation of Insurance Rates and Approval of Policy Forms. The insurance laws of most states in which our insurance subsidiaries operate require insurance companies to file insurance rate documents and policy forms for review and approval for use in that state. State insurance regulators have broad discretion in judging whether our rates are adequate, not excessive, not unfairly discriminatory and meet other criteria. The speed at which we

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can change our rates in response to market conditions or increasing costs depends, in part, on the method by which the applicable state’s rating laws are administered. If, as permitted in some states, we begin using new rates before they are approved, we may be required to issue refunds or credits to our policyholders if the new rates are ultimately deemed excessive or unfair and disapproved by the applicable state regulator. While we have occasionally modified our rate changes from the amount initially requested, we have rarely been denied rate changes and have not been required to issue refunds. In some states, there has been political pressure in past years to reduce premium rates for automobile insurance or to limit how often an insurer may request increases for such rates. In states where such pressure is applied, our ability to respond to market developments or increased costs in that state may be adversely affected.

Rate Rollbacks. Legislation imposing reductions in the premiums that we charge may affect our ability to price our insurance products at levels we deem adequate. In the past, certain states have adopted such legislation, known as “rollback legislation.” If any of the states in which we operate were to adopt such legislation, it may materially and adversely affect our business, financial condition or results of operations.

Regulation of Policy Service Fees. States may also review fees charged by insurance companies to cover certain operating expenses of the insurance company. Our policy service fee revenues provide revenues in addition to the direct premiums we collect. These fees include installment billing fees, cancellation fees and reinstatement fees. Changes in insurance regulation that restrict our ability to charge these fees could reduce our revenues.

Investment Restrictions. Our insurance subsidiaries are subject to state laws and regulations that require diversification of our investment portfolios and that limit the amount of investments in certain categories. Failure to comply with these laws and regulations would cause non-conforming investments to be treated as non-admitted assets for purposes of measuring statutory surplus and, in some instances, would require divestiture. If a non-conforming asset is treated as a non-admitted asset, it would lower the surplus of our insurance subsidiaries and, thus, their ability to write additional premiums and pay dividends. In some states, there has been recent political pressure for insurance companies to divest their carbon-based investments, which may adversely affect the investment portfolio returns of our insurance subsidiaries.

Restrictions on Cancellation, Non-Renewal or Withdrawal. Many states have laws and regulations that limit an insurer’s ability to exit a market. For example, certain states limit an automobile insurer’s ability to cancel or not renew policies, and others may enact moratoria prohibiting the termination, cancellation or nonrenewal of policies, such as during severe weather conditions and other catastrophes. Some states prohibit an insurer from withdrawing from one or more lines of business in the state, except pursuant to a plan approved by the state insurance department. In some states, this applies to significant reductions in the amount of insurance written, not just to a complete withdrawal. These laws and regulations could limit our ability to exit or reduce our writings in unprofitable markets or discontinue unprofitable products in the future.

Restrictions on Risk-Based Capital. The National Association of Insurance Commissioners (the “NAIC”) has adopted a system to test the adequacy of statutory capital of insurance companies, known as “risk-based capital.” This system establishes the minimum amount of risk-based capital necessary for a company to support its overall business operations. It identifies property and casualty insurers that may be inadequately capitalized by looking at certain inherent risks of each insurer’s assets and liabilities and its mix of net premiums written. Insurers falling below a calculated threshold may be subject to varying degrees of regulatory action, including supervision, rehabilitation or liquidation. Failure to maintain our risk-based capital at the required levels could adversely affect the ability of our insurance subsidiaries to maintain regulatory authority to conduct our business.

Restrictions on the Transmission and Use of Consumer Information. The transmission and use of consumer information is increasingly subject to legislation and regulation in the United States. Through our retail agency services, we provide consumer information to other insurance providers as an agent (whereby we are paid a commission) and as a referral (whereby we are paid a fee for referring customers, known as a lead referral). In addition, a portion of the policies underwritten by our primary insurance subsidiary come from referrals that we purchase from third parties, known as a lead purchase. These activities involve the transmission of consumer information. Legal or regulatory changes could increase our cost or impair our ability to transmit and use

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consumer information, which would adversely affect our lead and referral business. For further discussion, see “—Failure to protect the confidentiality of employee and consumer information or proprietary business information could lead to legal and reputational damage and materially adversely affect our business, financial condition or results of operations.”

Other Regulations. We must also comply with regulations involving, among other things:

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the acquisition or disposition of an insurance company or of any company controlling an insurance company;

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the involuntary assignments of high-risk policies, participation in reinsurance facilities and underwriting associations, assessments and other governmental charges; and

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periodic financial and market conduct examinations performed by state insurance department examiners.

Compliance with laws and regulations addressing these and other issues often results in increased administrative costs. In addition, these laws and regulations may limit our ability to price risks adequately, prevent us from obtaining timely rate increases necessary to cover increased costs and restrict our ability to discontinue unprofitable relationships or exit unprofitable markets. These results, in turn, may adversely affect our profitability or our ability or desire to grow our business in certain jurisdictions. Failure to comply with these laws and regulations may also result in actions by regulators, fines and penalties and, in extreme cases, revocation of our ability to do business in that jurisdiction. In addition, we may face individual and class action lawsuits by our insureds and other parties for alleged violations of certain of these laws or regulations. See “Business—Regulation” and “Business—Legal Proceedings.”

We may become subject to additional government or market regulation, which may materially and adversely affect our business, financial condition or results of operations.

Our business could be adversely affected by changes in state laws, including those relating to asset and reserve valuation requirements, surplus requirements, limitations on investments and dividends, enterprise risk and risk-based capital requirements and, at the federal level, laws and regulations that may affect certain aspects of the insurance industry, including proposals for preemptive federal regulation. The U.S. federal government generally has not directly regulated the insurance industry except for certain areas of the market, such as insurance for flood, nuclear and terrorism risks. However, the federal government has undertaken initiatives or considered legislation in several areas that may affect the insurance industry, including tort reform, corporate governance and the taxation of reinsurance companies.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) established the Federal Insurance Office (the “FIO”) and vested the FIO with the authority to monitor all aspects of the insurance sector and to recommend to the Financial Stability Oversight Council the designation of an insurer as “systemically significant” and therefore subject to regulation by the Federal Reserve as a bank holding company. The current administration has begun to modify various aspects of the Dodd-Frank Act, which creates substantial uncertainty and unpredictability as to whether the FIO will be impacted by regulatory or legislative changes, and whether any adopted regulatory or legislative changes could materially adversely affect our business, financial condition or results of operations.

Our failure to accurately and timely adjust claims could materially adversely affect our business, financial condition or results of operations.

We must accurately and timely evaluate and adjust claims that are made under our policies. Many factors affect our ability to adjust claims accurately and timely, including staffing levels, training and experience of our claims representatives, our claims organization’s culture, our ability to develop or select and implement appropriate procedures and systems to support our claims functions, the extent of and our ability to recognize fraudulent or inflated claims and other factors. Our failure to adjust claims accurately and timely could lead to regulatory and administrative actions or material litigation, undermine our reputation in the marketplace and materially adversely affect our business, financial condition or results of operations. In addition, as we continue to grow, and the volume of our claims grows correspondingly, our claims department may face challenges in managing these increased claims if we are unable to hire and train new claims representatives effectively or if we

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lose a significant number of experienced claims representatives. In addition to potentially requiring that growth be slowed in the affected markets, our business could suffer from decreased quality of claims work, which, in turn, could adversely affect our business, financial condition or results of operations.

Our insurance agency’s revenues depend on our relationships with insurance providers with no long-term contractual commitments.

As part of our growth strategy, we intend to expand our third-party insurance product offerings over time through our insurance agency to grow our customer base. We offer a wide array of insurance and related products through our retail agency channel, some as an agent for other insurers (whereby we are paid a commission) and some on a referral basis (whereby we are paid a fee for referring customers to other insurance providers). Our relationships with insurance providers depend on our ability to deliver quality service as an agent and provide referrals at attractive volumes and prices. If insurance providers are not satisfied with our service as an agent or with the referrals we provide through our retail agency channel, they may reduce or terminate their relationship with our insurance agency. Our agreements with insurance providers are short-term agreements, and insurance providers can stop participating in our retail agency channel at any time with minimal notice. In addition, we may not be able to attract new insurance providers to our marketplace or increase the amount of revenues we earn from insurance providers over time.

If we are unable to maintain existing relationships with insurance providers or unable to add new insurance providers, we may be unable to offer our consumers the shopping experience they expect. This deficiency could reduce consumers’ confidence in our services, making us less popular with consumers. As a result, consumers could cease to use us, or use us at a decreasing rate, which could materially adversely affect our business, financial condition or results of operations.

Changes in accounting practices and future pronouncements may materially affect our reported financial results.

Developments in accounting practices may require us to incur considerable additional expenses to comply, particularly if we are required to prepare information relating to prior periods for comparative purposes or to apply the new requirements retroactively. The impact of changes in current accounting practices and future pronouncements cannot be predicted but may affect the calculation of net income, shareholders’ equity and other relevant financial statement line items.

Our insurance subsidiaries are required to comply with statutory accounting principles (“SAP”). SAP and various components of SAP are subject to periodic review by the NAIC and its task forces and committees, as well as state insurance departments, in an effort to address emerging issues and otherwise improve financial reporting. Various proposals are pending before committees and task forces of the NAIC, some of which, if enacted, could have negative effects on insurance industry participants. The NAIC continuously examines existing laws and regulations. We cannot predict whether or in what form such proposals will be enacted and, if so, whether they will positively or negatively affect us.

As a holding company, we depend on the results of operations of our subsidiaries to meet our obligations and pay future dividends to us.

We are a holding company and a legal entity separate and distinct from our insurance subsidiaries. As a holding company without significant operations of our own, our principal sources of funds are dividends and other payments from our insurance subsidiaries. State insurance laws limit the ability of our insurance subsidiaries to pay dividends and require our insurance subsidiaries to maintain specified minimum levels of statutory capital and surplus. These restrictions affect the ability of our insurance subsidiaries to pay dividends to us without prior notice to, or approval of, regulatory authorities. For example, Safe Auto Insurance Company has been required in the past to obtain approval from the Ohio Department of Insurance to declare and pay extraordinary dividends. Consequently, our ability to repay debts, pay expenses and pay cash dividends to our shareholders may be limited. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and “Business—Regulation.”

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We have exposure to claims related to severe weather conditions and other catastrophes, which may result in an increase in the number of claims filed against us.

Our business is exposed to the risk of severe weather conditions and other catastrophes, such as snowstorms, rainstorms, hail and ice storms, windstorms, hurricanes, tornadoes, earthquakes, fires and other events such as terrorist attacks and riots. The incidence and severity of severe weather and catastrophes are inherently unpredictable, although global climate change may increase how often severe weather events occur. Such conditions generally result in an increase in the number of claims, which can negatively affect our profitability.

We may be subject to the risks and costs associated with intellectual property infringement, misappropriation and third-party claims.

Our success and ability to compete depend in part on our intellectual property, which includes our rights in our brand and our proprietary mobile platform. We rely on a combination of contractual rights (such as non-disclosure and confidentiality agreements with employees and other parties who have access to our trade secrets), our data warehouse and our proprietary processes and analyses and copyright, trademark and trade secret laws to establish and protect our intellectual property. Although we use a broad range of measures to protect intellectual property rights, the steps we take to protect our intellectual property may be inadequate, parties with whom we have entered into non-disclosure and confidentiality agreements may breach those agreements, and third parties may otherwise infringe or misappropriate our intellectual property. We may have to litigate a claim that a party has violated our intellectual property or to determine its scope, validity or enforceability or otherwise to enforce and protect our intellectual property. Such litigation could be costly, time-consuming and divert significant internal resources and may prove unsuccessful or result in the impairment or loss of portions of our intellectual property. Additionally, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability and scope of our intellectual property rights. An inability to protect intellectual property could have a material effect on our brand or our business, financial condition or results of operations.

Our success depends also in part on our not infringing the intellectual property rights of others. We may be subject to claims by third parties for patent, trademark or copyright infringement or breach of usage rights. Any such claims and any resulting litigation could result in significant expense and liability. If we or third-party providers are found to have infringed a third-party intellectual property right, one of us could be enjoined from providing certain products or services or from utilizing and benefiting from certain methods, processes, copyrights, trademarks, trade secrets or licenses. Alternatively, we could be required to enter into licensing arrangements with third parties, which may not be available on commercially reasonable terms or at all, or implement a costly work-around. Any of these scenarios could have a material adverse effect on our business, financial condition or results of operations.

New pricing, claim and coverage issues are continually emerging in the personal automobile insurance industry, and these new issues could adversely impact our revenues, results of operations and methods of doing business.

As personal automobile insurance industry practices and regulatory, judicial and consumer conditions change, unexpected and unintended issues related to claims, coverage and business practices may emerge. For example, we are named in the ordinary course of business as a defendant in legal actions arising principally from claims made under our insurance contracts, but we are also at times subject to claims seeking damages beyond our original contractual obligations or policy limits (commonly referred to as extra-contractual claims or bad faith claims). Due to the unpredictability of court decisions, we cannot predict whether courts will assess damages for such extra-contractual claims, or for other claims we believe to be outside the scope of our policies. Any such damages could be material. The uncertainty caused by regulatory, judicial and consumer actions and developments could have a material adverse effect on our business by changing the way we price our products, extending coverage beyond our intent, increasing the severity or frequency of claims, requiring us to obtain additional licenses or requiring that we change our operating practices. The effects of these unforeseen emerging issues could negatively affect our revenues, results of operations and methods of doing business.

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Pending or future legal claims may divert management’s attention and have a negative impact upon our financial condition, results of operations or cash flows.

As is typical in our industry, we face risks associated with litigation of various types, including disputes relating to insurance claims under our policies, as well as general commercial and corporate litigation. We have been named as defendants in claims, complaints and legal actions that are routine and incidental to our business. Regardless of whether or not we are successful, litigation could cause us to incur substantial costs, could distract management, and may have unfavorable results that could further adversely impact our financial condition. While we currently believe that the ultimate resolution of these matters, individually and in the aggregate, will not materially and adversely affect our business, financial condition or results of operations, such matters are subject to inherent uncertainties. In the event of an unfavorable outcome in one or more litigation matters, the ultimate liability may be in excess of amounts currently reserved and may be material to our results of operations, processes, contract conditions or cash flows for a particular quarter or annual period and to our financial condition.

Our ability to compete in the property and casualty insurance industry and our ability to expand our business may be negatively affected by the fact that our insurance subsidiaries do not have a rating.

Rating agencies rate insurance companies based on their financial strength and their ability to pay claims, factors that are relevant to agents and policyholders. Our insurance subsidiaries have never been rated by any nationally recognized independent rating agency. The ratings assigned by nationally recognized independent rating agencies may become material to our insurance subsidiaries’ ability to maintain and expand our business. Ratings from rating agencies are used by some insurance buyers, agents and brokers as an indicator of financial strength and security. Consumers and other third parties we engage with in the course of operating our business may be reluctant to do business with us because we are not rated, which may in turn limit our ability to compete with large, national insurance companies and certain regional insurance companies.

Future acquisitions could disrupt our business and may divert management’s attention and if unsuccessful, materially adversely affect our business, financial condition or results of operations.

In the future, we may choose to expand our business by making acquisitions. Acquisitions involve many risks, including the following:

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regardless of whether consummated, any attempted acquisition may disrupt our ongoing business, divert resources, increase our expenses and distract our management;

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an acquisition may negatively affect our financial condition or results of operations because it may require us to incur charges or assume substantial debt or other liabilities, may cause adverse tax consequences or unfavorable accounting treatment, may expose us to claims and disputes by third parties, including intellectual property claims and disputes, or may not generate sufficient financial returns to offset additional costs and expenses related to the acquisition;

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we may encounter difficulties or unforeseen expenditures in integrating the business, technologies, personnel or operations of any company that we acquire, particularly if key personnel of the acquired company decide not to work for us;

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an acquisition may involve the entry into geographic or business markets in which we have little or no prior experience or where competitors have stronger market positions;

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we may face challenges inherent in effectively managing an increased number of employees in diverse locations;

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integration of acquisitions could impose strains on our financial and managerial controls and reporting systems and procedures;

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we could suffer adverse impacts from potential known and unknown liabilities associated with an acquired company;

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any cash that we use to pay for acquisitions will not be available for other uses;

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if we incur debt to fund such acquisitions, this debt may subject us to material restrictions on our ability to conduct our business as well as financial maintenance covenants;

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we could be required to record impairment charges to write down goodwill acquired in future acquisitions; and

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to the extent that we issue a significant amount of equity or equity-linked securities in connection with future acquisitions, existing shareholders may be diluted and earnings per share may decrease.

We may not succeed in addressing these or other risks or any other problems encountered in connection with the integration of any acquired business. The inability to integrate successfully the business, technologies, personnel or operations of any acquired business, or any significant delay in achieving integration, could materially adversely affect our business, financial condition or results of operations.

Risks Related to this Offering and Ownership of Our Common Shares

Our founders control us and the direction of our business and may have interests that differ from those of our other shareholders.

After giving effect to this offering, our founders, Ari Deshe and Jon P. Diamond, individually or together with their immediate family members and trusts for their respective benefits as the context requires, will beneficially own approximately % and % of our common shares, respectively (or % and %, respectively, if the underwriters’ exercise their option to purchase additional shares in full). As a result, our founders, if they vote in the same manner, together will be able to control the election of our directors, determine our corporate and management policies and determine, without the consent of our other shareholders, the outcome of any corporate transaction or other matter submitted to our shareholders for approval, including mergers, acquisitions, asset sales and other significant corporate transactions and amendments to our organizational documents. The interests of our founders may differ from the interests of our other shareholders in some respects, and this concentration of voting control could deprive you of an opportunity to receive a premium for your common shares as part of a sale of our company. Moreover, this concentration of share ownership may adversely affect the trading price of our common shares if investors perceive disadvantages in owning shares of a company with controlling founders.

In addition, we expect to be a “controlled company” for the purposes of the Nasdaq rules, which will provide us with exemptions from certain of the corporate governance standards imposed by the rules of the Nasdaq. These provisions will further allow our founders to exercise significant control over our corporate decisions and limit the ability of the public shareholders to influence our decision making. See “—We expect to be a ‘controlled company’ within the meaning of the rules and, as a result, qualify for, and will rely on, exemptions from certain corporate governance requirements that provide protection to the shareholders of companies that are subject to such corporate governance requirements.”

Our amended and restated articles of incorporation and amended and restated regulations will contain a number of provisions that may discourage, delay or prevent a change in management or control for so long as our founders own specified percentages of our voting securities. See “—Provisions in our amended and restated articles of incorporation and amended and restated regulations and Ohio law could discourage, delay or prevent a change in control of our company and may adversely affect the trading price of our common shares.” These provisions not only could have a negative impact on the trading price of our common shares, but also could allow our founders to delay or prevent a corporate transaction that our public shareholders support.

In addition, in connection with this offering, we will enter into a director nomination agreement with our founders that will grant our founders the right to nominate individuals to our board of directors, provided certain ownership requirements are met. Subject to limited exceptions, we will include these nominees in the slate of nominees recommended to our shareholders for election as directors. The director nomination agreement will terminate automatically at such time that neither founder beneficially owns 5% or more of our outstanding voting securities. See “Certain Relationships and Related Person Transactions—Director Nomination Agreement.” As a result of their director nomination rights, our founders may have the ability to influence the outcome of matters that require board approval or to otherwise cause us to pursue transactions and take actions that could enhance their equity interests, even though such transactions or actions may involve risks to you as a holder of our common shares.

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We expect to be a “controlled company” within the meaning of the Nasdaq rules and, as a result, would qualify for, and will rely on, exemptions from certain corporate governance requirements that provide protection to the shareholders of companies that are subject to such corporate governance requirements.

Upon completion of this offering, our founders are expected to continue to beneficially own more than 50% of the voting power for the election of members of our board of directors. As a result, we expect to be a “controlled company” within the meaning of the corporate governance standards of the Nasdaq rules. Under these rules, a listed company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain of Nasdaq’s corporate governance requirements.

As a controlled company, we may rely on certain exemptions from the Nasdaq standards that enable us not to comply with certain corporate governance requirements, including the requirements that:

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a majority of our board of directors consists of “independent directors,” as defined under the Nasdaq rules;

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we have a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities;

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we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

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the charters of either our nominating and corporate governance committee or our compensation committee address the annual performance evaluation of such committee.

Following this offering, we intend to rely on the foregoing exemptions. We will not have a majority of independent directors, and we will not have a compensation committee or nominating and corporate governance committee. Consequently, you will not have the same protections afforded to shareholders of companies that are subject to all applicable stock exchange corporate governance rules and requirements. Our status as a controlled company could make our common shares less attractive to some investors or otherwise harm our share price. See “Management—Controlled Company Exemption.”

Even as a controlled company, we will remain subject to the rules of Sarbanes-Oxley as well as the rules of the Nasdaq that require us to have an audit committee composed entirely of independent directors, subject to permitted phase-in rules. Under these phase-in rules, we are required to have one independent audit committee member upon the listing date of our common shares on the Nasdaq, a majority of independent audit committee members within 90 days from the listing date and all independent audit committee members within one year from the listing date. Upon consummation of this offering, we expect that our audit committee will be comprised of three members, all of whom will be independent.

If at any time we cease to be a controlled company, we will take all action necessary to comply with the rules of the Nasdaq, including by appointing a majority of independent directors to our board of directors and ensuring we have a compensation committee and a nominating and corporate governance committee, each composed entirely of independent directors, subject to a permitted “phase-in” period.

There is no public market for our common shares.

Prior to this offering, there has not been a public trading market for our common shares. We have applied to list our common shares on the Nasdaq under the symbol “SAIG.” However, an active and liquid trading market for our common shares may not develop or, if developed, be sustained after this offering. If an active and liquid trading market does not develop, you may have difficulty selling your common shares at an attractive price, or at all. The initial public offering price for our common shares sold in this offering will be determined by negotiations among us, the selling shareholders and the representatives of the underwriters. This price may not be indicative of the price at which our common shares will trade after this offering. The market price of our common shares may decline below the initial public offering price, and you may not be able to sell your common shares at or above the price you paid in this offering, or at all.

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Our share price may be volatile, or may decline regardless of our operating performance, and you could lose all or part of your investment.

You should consider an investment in our common shares to be risky, and you should invest in our common shares only if you can withstand a significant loss and wide fluctuations in the market value of your investment. Even if a trading market develops for our common shares and/or our results of operations are positive, the market price of our common shares could be subject to significant fluctuations after this offering in response to the factors described in this “Risk Factors” section and other factors, many of which are beyond our control. Among the factors that could affect our share price are:

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general economic, market and political conditions;

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industry-specific regulatory and legal developments and changes in social policy;

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actual or anticipated variations in our quarterly and annual results of operations or those of other companies in our industry;

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changes in market valuations of companies perceived to be similar to us;

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publication of research reports or news stories about us, our competitors or our industry, or positive or negative recommendations or withdrawal of research coverage by securities analysts;

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the public’s response to our or our competitors’ filings with the SEC, press releases or other announcements regarding acquisitions or dispositions, restructurings, litigation, regulation or other strategic actions and significant matters;

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changes in our board of directors, senior management or other key personnel;

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adverse reactions to any strategic initiatives we undertake, new products we introduce or new markets we enter;

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sales of our common shares, including by our directors, executive officers and principal shareholders;

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short sales, hedging and other derivative transactions in our common shares;

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any indebtedness we may incur or securities we may issue in the future;

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actions by third parties, such as shareholders, regulators or consumer groups;

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exposure to capital and credit market risks that adversely affect our investment portfolio or our capital resources; and

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the actual or anticipated passage of state and federal legislation or other regulatory developments affecting us or our industry.

The securities markets have from time to time experienced extreme price and volume fluctuations that often have been unrelated or disproportionate to the operating performance of particular companies. These broad market fluctuations, as well as general market, economic and political conditions, such as recessions, loss of investor confidence or interest rate changes, may negatively affect the market price of our common shares.

If any of the foregoing occurs, it could cause our share price to fall and may expose us to securities class action litigation that, even if unsuccessful, could be costly to defend, divert management’s attention and resources or harm our business.

If securities analysts do not publish research or reports about our business or our industry or if they issue unfavorable or misleading commentary or issue negative recommendations with respect to our common shares, the price of our common shares could decline.

The trading market for our common shares will be influenced by the research and reports that equity research and other securities analysts publish about us, our business and our industry. We do not have control over these analysts, and we may be unable or slow to attract research coverage. One or more analysts could issue negative recommendations with respect to our common shares or publish other unfavorable commentary or cease publishing reports about us, our business or our industry. If one or more of these analysts cease coverage of us, we could lose visibility in the market. As a result of one or more of these factors, the market price of our common shares could decline rapidly and our common share trading volume could be adversely affected.

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Our amended and restated articles of incorporation will provide that the Court of Common Pleas of Franklin County, Ohio is the exclusive forum for substantially all disputes between us and our shareholders, which could limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated articles of incorporation will provide that, subject to certain exceptions, the Court of Common Pleas of Franklin County, Ohio (or, if the Court of Common Pleas of Franklin County, Ohio does not have jurisdiction, the United States District Court for the Southern District of Ohio, Eastern Division) will be the exclusive forum for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of fiduciary duty owed by any director or officer or other employee to us or our shareholders, (3) any action asserting a claim against us or any director or officer or other employee pursuant to the Ohio Revised Code, our amended and restated articles of incorporation or our amended and restated regulations or (4) any action asserting a claim against us or any director or officer or other employee governed by the internal affairs doctrine; provided that this exclusive choice of forum provision will not apply to suits brought to enforce any liability or duty created by the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or any other claim for which the federal courts have exclusive jurisdiction. Furthermore, our amended and restated articles of incorporation will also provide that, unless we consent in writing to the selection of any alternative forum, the federal district courts of Ohio will be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. The enforceability of similar exclusive forum provisions in other companies’ organizational documents has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be inapplicable or unenforceable. The Ohio exclusive forum provision may limit a shareholder’s ability to bring a claim in a judicial forum that the shareholder finds favorable for disputes with us or our directors, officers or other employees and may discourage these types of lawsuits. Alternatively, if a court were to find these choice of forum provisions contained in our amended and restated articles of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, financial condition or results of operations.

Provisions in our amended and restated articles of incorporation and amended and restated regulations and Ohio law could discourage, delay or prevent a change in control of our company and may adversely affect the trading price of our common shares.

Provisions of our amended and restated articles of incorporation and amended and restated regulations and Ohio law may discourage, delay or prevent a merger, acquisition or other change in control that shareholders may consider advantageous, including transactions in which you would otherwise receive a premium for your shares of our common shares. These provisions may also prevent or frustrate attempts by our shareholders to replace or remove our management. These provisions include those which:

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authorize the issuance of “blank check” preferred shares, which our board of directors could issue to discourage a takeover attempt;

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establish a classified board of directors so that not all members of our board of directors are elected at one time;

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prohibit our shareholders from acting by written consent;

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provide that litigation against us, our directors and our officers asserting claims of breaches of fiduciary duty or certain other claims can only be brought in Ohio;

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provide that our board of directors, without the assent or vote of our shareholders, is expressly authorized to make, alter or repeal our amended and restated regulations;

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establish advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on at shareholder meetings;

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prohibit shareholders from removing directors without cause; and

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prohibit cumulative voting in the election of directors, which would otherwise allow less than a majority of shareholders to elect director candidates.

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The existence of the foregoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for our common shares. These provisions could also deter potential acquirers of our company, thereby reducing the likelihood that you could receive a premium for your common shares in an acquisition.

Future sales, or the perception of future sales, of our common shares may depress the market price of our common shares.

The sale of substantial amounts of our common shares in the public market, or the perception that such sales could occur, could harm the prevailing market price of our common shares. These sales, or the possibility that these sales may occur, also might make it more difficult for you to sell your common shares in the future at a time and at a price that you deem appropriate, if at all. Upon completion of this offering, we will have outstanding an aggregate of approximately common shares (or shares, if the underwriters exercise in full their option to purchase additional common shares). Of these shares, the shares to be sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless such shares are held by our directors, executive officers or any of our affiliates, as that term is defined in Rule 144 under the Securities Act (“Rule 144”). All remaining common shares outstanding following this offering will be “restricted securities” within the meaning of Rule 144 under the Securities Act. Restricted securities may not be sold in the public market unless the sale is registered under the Securities Act or an exemption from registration is available. We will grant registration rights to our founders with respect to our common shares pursuant to the registration rights agreement that we expect to enter into in connection with this offering described in “Certain Relationships and Related Person Transactions—Registration Rights Agreement.”

In connection with this offering, we, our officers, directors and the selling shareholders have each agreed to enter into “lock-up” agreements with the underwriters and thereby be subject to a lock-up period, meaning that we and they, and our and their permitted transferees, will not be permitted to sell any of our common shares for 180 days after the date of this prospectus, subject to certain exceptions, without the prior written consent of the representatives of the underwriters. Upon the expiration of or prior release or waiver from these lock-up agreements, all of such shares will be eligible for resale in the public market, subject, in the case of shares held by our affiliates, to volume, manner of sale and other limitations under Rule 144. As restrictions on resale end, the market price of our shares could drop significantly if the holders of these shares sell them or are perceived by the market as intending to sell them. These factors could also make it more difficult for us to raise additional funds through future offerings of our common shares or to use our common shares as consideration for acquisitions of other businesses, investments or other corporate purposes. See “Underwriting” for a description of these lock-up agreements. See also “Principal and Selling Shareholders” and “Shares Eligible for Future Sale—Lock-up Agreements.”

We expect that upon the consummation of this offering, our board of directors and our shareholders will have approved the Omnibus Incentive Plan, which will permit us to issue, among other things, share options, RSUs and restricted shares and other share-based awards to eligible employees (including our named executive officers), directors and advisors, as determined by the board of directors. We intend to file one or more registration statements on Form S-8 under the Securities Act, as soon as practicable after the consummation of this offering, to cover the issuance of shares upon the exercise of awards granted, and of shares granted, under the Omnibus Incentive Plan. As a result, any shares issued under the Omnibus Incentive Plan after the consummation of this offering also will be freely tradable in the public market, subject to vesting restrictions, the lock-up agreements described elsewhere in this prospectus and Rule 144 limitations applicable to affiliates. If equity securities are granted under the Omnibus Incentive Plan and it is perceived that they will be sold in the public market, then the price of our common shares could decline.

Also, in the future, we may issue our securities in connection with investments or acquisitions. The amount of our common shares issued in connection with an investment or acquisition could constitute a material portion of our then outstanding common shares.

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We will incur significant increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.

As a public company, we will have significant requirements for enhanced financial reporting and internal controls. The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environment and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company.

Sarbanes-Oxley and the Dodd-Frank Act, as well as other rules subsequently implemented by the SEC and the Nasdaq, place significant additional demands on our finance and accounting staff and on our financial accounting and information systems. We may in the future hire additional accounting and financial staff with appropriate public company reporting experience and technical accounting knowledge. Other expenses associated with being a public company include increases in auditing, accounting and legal fees and expenses, increased directors’ fees and director and officer liability insurance costs, registrar and transfer agent fees and listing fees, as well as other expenses. As a public company, we will be required, among other things, to:

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prepare and file periodic reports and distribute other shareholder communications, in compliance with the federal securities laws and requirements of the Nasdaq;

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define and expand the roles and the duties of our board of directors and its committees;

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institute more comprehensive compliance and investor relations functions; and

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evaluate and maintain our system of internal control over financial reporting, and report on management’s assessment thereof, in compliance with rules and regulations of the SEC and the Public Company Accounting Oversight Board.

We may not be successful in implementing these requirements, and implementing them could materially adversely affect our business. The increased costs will decrease our net income and may require us to reduce costs in other areas of our business or increase the prices of our products or services to offset these costs. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.

Beginning with our second annual report following this offering, we will be required pursuant to SEC rules to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This assessment will need to include disclosure of any material weaknesses identified by our management in internal control over financial reporting. In addition, our independent registered public accounting firm will be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to the SEC rules commencing the later of the year following our first annual report required to be filed with the SEC or the date we are no longer an “emerging growth company” (as defined in the JOBS Act). Testing and maintaining internal controls may divert our management’s attention from other matters that are important to our business. We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with the SEC rules or our independent registered public accounting firm may not issue an unqualified opinion. If either we are unable to conclude that we have effective internal control over financial reporting or our independent registered public accounting firm is unable to provide us with an unqualified report, investors could lose confidence in our reported financial information, which could cause the price of our common shares to decline and could subject us to investigation or sanctions by the SEC. See “—We will be required by Section 404 of Sarbanes-Oxley to evaluate the effectiveness of our internal control over financial reporting. If we are unable to achieve and maintain effective internal controls, our business, financial condition or results of operations could be harmed.”

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You will incur immediate dilution as a result of this offering.

The initial public offering price per common share in this offering is substantially higher than the pro forma as adjusted net tangible book value per share of our common shares based on the total value of our tangible assets less our total liabilities divided by our pro forma common shares outstanding immediately following this offering. Therefore, if you purchase common shares in this offering, you will experience immediate and substantial dilution in net tangible shareholders’ equity per share value after consummation of this offering. Assuming an offering price of $ per common share, which is the midpoint of the price range set forth on the cover page of this prospectus, you will incur immediate and substantial dilution in an amount of $ per common share. See “Dilution.”

You may be diluted by the future issuance of additional common shares in connection with our incentive plans, acquisitions or otherwise.

After this offering we will have approximately common shares authorized but unissued. We are authorized to issue these common shares and options, rights, warrants and appreciation rights relating to common shares for the consideration and on the terms and conditions established by our board of directors in its sole discretion, whether in connection with acquisitions or otherwise. Additionally, we have reserved an aggregate of common shares for issuance under our Omnibus Incentive Plan, such amount to be increased on the first day of each fiscal year beginning in calendar year 2020 by a number of common shares determined in accordance with the terms of our Omnibus Incentive Plan. See “Executive and Director Compensation— Omnibus Incentive Plan.” Any common shares that we issue, including under our Omnibus Incentive Plan or other equity incentive plans that we may adopt in the future, would dilute the percentage ownership held by the investors who purchase common shares in this offering. See “Dilution.”

We may issue preferred shares whose terms could adversely affect the voting power or value of our common shares.

Our amended and restated articles of incorporation will authorize us to issue, without the approval of our shareholders, one or more classes or series of preferred shares having such designations, preferences, limitations and relative rights, including preferences over our common shares respecting dividends and distributions, as our board of directors may determine. The terms of one or more classes or series of preferred shares could adversely impact the voting power or value of our common shares. For example, we may grant holders of preferred shares the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we may assign to holders of preferred shares could affect the residual value of our common shares.

We will be required by Section 404 of Sarbanes-Oxley to evaluate the effectiveness of our internal control over financial reporting. If we are unable to achieve and maintain effective internal controls, our business, financial condition or results of operations could be harmed.

As a public company with SEC reporting obligations, we will be required to document and test our internal control procedures to satisfy the requirements of Section 404(b) of Sarbanes-Oxley, which will require annual assessments by management of the effectiveness of our internal control over financial reporting beginning with our second annual report following this offering. We are an emerging growth company, and thus we are exempt from the auditor attestation requirement of Section 404(b) of Sarbanes-Oxley until such time as we no longer qualify as an emerging growth company. See also “—We are eligible to be treated as an emerging growth company, as defined in the JOBS Act, and are availing ourselves of the reduced disclosure requirements applicable to emerging growth companies, which could make our common shares less attractive to investors.” Regardless of whether we qualify as an emerging growth company, we will still need to implement substantial internal control systems and procedures in order to satisfy the reporting requirements under the Exchange Act, and applicable requirements.

During the course of our assessment, we may identify deficiencies that we are unable to remediate in a timely manner. Testing and maintaining our internal control over financial reporting may also divert management’s attention from other matters that are important to the operation of our business. We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404(b) of Sarbanes-Oxley. If we conclude that our internal control over financial reporting is not effective, we cannot be certain as to the timing of completion of our evaluation, testing and

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remediation actions or their effect on our operations. Moreover, any material weaknesses or other deficiencies in our internal control over financial reporting may impede our ability to file timely and accurate reports with the SEC. Any of the above could cause investors to lose confidence in our reported financial information or our common shares listing on the Nasdaq to be suspended or terminated, which could have a negative effect on the trading price of our common shares.

We are eligible to be treated as an emerging growth company, as defined in the JOBS Act, and are availing ourselves of the reduced disclosure requirements applicable to emerging growth companies, which could make our common shares less attractive to investors.

We are an emerging growth company, as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including among other things, not being required to comply with the auditor attestation requirements of Section 404(b) of Sarbanes-Oxley, reduced disclosure obligations regarding executive compensation and exemptions from the requirements of holding a non-binding shareholder advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. We have decided to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our shareholders may not have access to certain information that they may deem important.

We could be an emerging growth company for up to five years from the date of this offering, although circumstances could cause us to lose that status earlier, including if the market value of our common shares held by non-affiliates exceeds $700.0 million as of any June 30 before that time, if we have total annual gross revenues of $1.07 billion or more during any fiscal year before that time or if we issue more than $1.0 billion in non-convertible debt during any three-year period. Even after we no longer qualify as an emerging growth company, we may qualify as a “smaller reporting company” which would allow us to take advantage of many of the same exemptions from disclosure requirements, including not being required to comply with the auditor attestation requirements of Section 404 of Sarbanes-Oxley and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We cannot predict if investors will find our common shares less attractive because we rely on these exemptions. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and our share price may be more volatile.

We have broad discretion in the use of the net proceeds from the sale of shares by us in this offering, and we cannot specify with any certainty the particular uses of such net proceeds nor guarantee that we will use such net proceeds effectively.

We cannot specify with any certainty the particular uses of the net proceeds that we will receive from this offering. Our management will have broad discretion in the application of the net proceeds from the sale of shares by us in this offering, including for any of the purposes described in the section entitled “Use of Proceeds,” and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Because of the number and variability of factors that will determine our use of the net proceeds from the sale of shares by us in this offering, their ultimate use may vary substantially from their currently intended use. Our management may not apply our net proceeds in ways that ultimately increase the value of your investment. The failure by our management to apply these funds effectively could harm our business. If we do not invest or apply the net proceeds from the sale of shares by us in this offering in ways that enhance shareholder value, we may fail to achieve expected financial results, which could cause our share price to decline.

We do not expect to pay any dividends in the foreseeable future.

Following this offering, we intend to retain our future earnings to fund the development and growth of our business and, therefore, do not intend to pay dividends on our common shares for the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on (1) our financial condition, liquidity, results of operations (including our ability to generate cash flow in excess of

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expenses and our expected or actual net income), retained earnings and capital requirements, (2) general business conditions, (3) legal, tax and regulatory limitations, including the ability of our insurance subsidiaries to pay dividends to us, (4) contractual prohibitions and other restrictions, (5) the effect of a dividend or dividends on our financial strength ratings and (6) any other factors that our board of directors deems relevant. Accordingly, investors in our common shares may need to sell their shares to realize a return on their investment in our common shares, and investors may not be able to sell their shares at or above the prices paid for them. See “Dividend Policy.”

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FORWARD-LOOKING STATEMENTS

Forward-looking statements reflect our current views with respect to, among other things, our future financial performance, our business prospects and strategy, anticipated financial position, liquidity and capital needs and other similar matters. You can identify forward-looking statements by words such as “anticipate,” “estimate,” “expect,” “intend,” “project,” “plan,” “predict,” “believe,” “seek,” “continue,” “outlook,” “trends,” “may,” “will,” “should,” “can have,” “likely” or the negative version of these words or other comparable words. Forward-looking statements are based on beliefs and assumptions made by management using currently available information. These statements are only predictions and are not guarantees of future performance, actions or events. Forward-looking statements are subject to risks and uncertainties. If one or more of these risks or uncertainties materialize, or if management’s underlying beliefs and assumptions prove to be incorrect, actual results may differ materially from those contemplated by a forward-looking statement. These risks and uncertainties include those set forth under “Risk Factors.”

Forward-looking statements speak only as of the date on which they are made. Except as required by federal securities laws and the rules and regulations of the SEC, we do not have any obligation, and do not undertake, to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

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USE OF PROCEEDS

We estimate that the net proceeds to us from this offering at an assumed initial public offering price of $ per common share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $ million (or $ million if the underwriters exercise in full their option to purchase additional common shares).

A $1.00 increase or decrease in the assumed initial public offering price of $ per common share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, the net proceeds to us from this offering by approximately $ million, assuming the number of shares offered by us remains the same as set forth on the cover page of this prospectus and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The principal purposes of this offering are to create a public market for our common shares, obtain additional capital, facilitate our future access to the public equity markets, increase awareness of our brand and improve our competitive position. We currently anticipate using our net proceeds from this offering to support our growth initiatives, increase our advertising spending and invest in our technology, as well as for general corporate purposes, including potential acquisitions. In addition, pursuant to his employment agreement, originally entered into in August 2012, our CEO and President is entitled to a “phantom equity compensation” payment within 30 days of the closing date of this offering. See “Executive and Director Compensation—Employment Agreements.”

We cannot specify with certainty the particular uses of all of our net proceeds from this offering or the amounts that we will actually spend on such uses. The amounts and timing of our actual use of proceeds will vary depending on numerous factors, including those described in “Risk Factors.” As a result, our management will have broad discretion in the use of these net proceeds, and investors will be relying on the judgment of our management regarding the application of the net proceeds.

Additionally, under applicable SEC guidance, dividends declared in the year preceding an initial public offering are deemed to be in contemplation of the offering with the intention of repayment out of the offering proceeds to the extent that dividends exceeded earnings during such period. We have provided pro forma earnings per share information for the year ended December 31, 2018 that gives pro forma effect to the assumed issuance of a number of shares the proceeds of which are deemed to be necessary to pay the dividend amount that is in excess of earnings during the year ended December 31, 2018 (or $1.4 million). See “Prospectus Summary—Summary of Historical Financials and Other Data” and “Selected Historical Consolidated Financial Information and Other Data” for pro forma earnings per share information.

We will not receive any proceeds from the sale of common shares by the selling shareholders, including from any exercise by the underwriters of their option to purchase additional shares from the selling shareholders.

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DIVIDEND POLICY

Following this offering, we do not intend to pay cash dividends on our common shares for the foreseeable future and currently intend to retain any future earnings to fund the development and growth of our business. Any future determination to pay dividends will be made at the discretion of our board of directors and will take into account a variety of factors when determining whether to declare any dividends, including (1) our financial condition, liquidity, results of operations (including our ability to generate cash flow in excess of expenses and our expected or actual net income), retained earnings and capital requirements, (2) general business conditions, (3) legal, tax and regulatory limitations, (4) contractual prohibitions and other restrictions, (5) the effect of a dividend or dividends on our financial strength ratings and (6) any other factors that our board of directors deems relevant. On November 26, 2018, we declared a dividend of $700.00 per share to our voting and non-voting shareholders for an aggregate amount equal to $21.6 million.

We are a holding company and have no direct operations. Our ability to pay dividends in the future depends on the ability of our operating subsidiaries to pay dividends to us. The ability of Safe Auto Insurance Company or any of our other insurance subsidiaries to pay dividends to us is subject to limits under insurance laws of the states in which our insurance subsidiaries are domiciled. See “Risk Factors—Risks Related to Our Business—As a holding company, we depend on the results of operations of our subsidiaries to meet our obligations and pay future dividends to us,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and “Business—Regulation.”

In addition, in 2004 we organized a special purpose trust subsidiary which issued floating rate trust preferred securities in an exempt private placement transaction and used the proceeds from such sale of floating rate trust preferred securities to purchase junior subordinated debentures from us. If we defer or default on interest payments relating to the junior subordinated debentures, we will be prohibited from paying dividends on our common shares during such time. For further discussion of our trust subsidiary, see Note 8 of the notes to our audited consolidated financial statements included elsewhere in this prospectus and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Financing and Capital.”

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2019:

•

on an actual basis;

•

on a pro forma basis to reflect the Reclassification; and

•

on a pro forma as adjusted basis to further reflect (1) the issuance and sale by us of common shares in this offering at an assumed initial public offering price of $ per common share (which is the midpoint of the price range set forth on the cover page of this prospectus) and (2) the receipt of the net proceeds from our sale of those shares.

The information below is illustrative only, and our capitalization following this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. Cash and cash equivalents are not components of our total capitalization. You should read this table together with the other information contained in this prospectus, including “Use of Proceeds,” “Selected Consolidated Financial Information and Other Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and accompanying notes included elsewhere in this prospectus.

	As of March 31, 2019
	Actual			Pro Forma	Pro Forma As Adjusted⁽²⁾
	(in thousands, except share and per share data)
Cash and cash equivalents⁽¹⁾	$	29,239		$	$

Debt and capital lease obligations⁽³⁾	$	13,193		$	$
Voting common shares, $0.01 par value per share, 25,000 shares authorized, 330 shares issued, 303 outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted		—
Non-voting common shares, $0.01 par value per share, 50,000 shares authorized, 33,330 shares issued, 30,540.5 outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted		—
Treasury stock, at cost, 27 voting common shares, actual; no shares issued and outstanding, pro forma and pro forma as adjusted; 2,789.5 non-voting common shares, actual; no shares issued and outstanding, pro forma and pro forma as adjusted		(16,459	)
Common shares, $0.01 par value per share, no shares authorized, issued and outstanding, actual; shares authorized, shares issued and outstanding, pro forma; shares authorized, shares issued and outstanding, pro forma as adjusted		—
Preferred shares, $0.01 par value per share, no shares authorized, issued and outstanding, actual; shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted		—
Additional paid-in capital		7,400
Retained earnings		193,495
Accumulated other comprehensive income		2,726
Total shareholders’ equity	$	187,162		$	$
Total capitalization	$	200,355		$	$

(1)

On November 26, 2018, our board of directors declared a $700 per share dividend for all outstanding common shares totaling $21.6 million. The dividend was paid on January 18, 2019 to shareholders of record as of November 26, 2018. The dividend is reflected in the table above in retained earnings on an actual basis and in cash and cash equivalents on a pro forma as adjusted basis.

(2)

Each $1.00 increase or decrease in the assumed initial public offering price of $ per common share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, pro forma as adjusted cash and cash equivalents, total shareholders’ equity and total capitalization by approximately $ million, assuming the number of common shares offered by us remains the same as set forth on the cover page of this prospectus and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

(3)

Our debt consists of floating rate junior subordinated debentures. For more information, see Note 8 of the notes to our audited consolidated financial statements included elsewhere in this prospectus and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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DILUTION

If you invest in our common shares in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per common share and the pro forma as adjusted net tangible book value per common share after this offering. Dilution results from the fact that the initial public offering price per common share is substantially in excess of the pro forma net tangible book value per common share attributable to holders of our common shares prior to this offering.

Our pro forma net tangible book value as of March 31, 2019 was approximately $ , or $ per common share. Pro forma net tangible book value per common share represents our total tangible assets less total liabilities, divided by the number of common shares outstanding, after giving effect to the Reclassification described under “Description of Capital Stock—Reclassification of Common Shares” but before giving effect this offering.

After giving effect to this offering, at an assumed initial offering price of $ per share (which is the midpoint of the price range set forth on the cover page of this prospectus), and the receipt of proceeds therefrom, as described in “Use of Proceeds,” our pro forma as adjusted net tangible book value as of March 31, 2019 would have been $ , or $ per common share. This represents an immediate increase in pro forma net tangible book value of $ per common share to our holders of our common shares prior to this offering and an immediate dilution of $ per common share to investors in this offering.

The following table illustrates this dilution on a per common share basis, assuming the underwriters do not exercise their option to purchase additional common shares:

The following table summarizes, as of March 31, 2019, on a pro forma as adjusted basis as described above, the total number of common shares purchased from us, the total cash consideration paid to us, and the average price per common share paid by holders of our common shares prior to this offering and by investors in this offering, assuming the underwriters do not exercise their option to purchase additional common shares. As the table shows, investors purchasing shares in this offering will pay an average price per common share substantially higher than our holders of our common shares prior to this offering paid. The table below reflects an assumed initial public offering price of $ per common share, which is the midpoint of the price range set forth on the cover page of this prospectus, for common shares purchased in this offering and excludes estimated underwriting discounts and commissions and estimated offering expenses payable by us:

Common
Shares Purchased

Total
Consideration

Average
Price Per
Common share

Number

Percent

Amount

Percent

Existing shareholders

New investors in this offering

Total

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Each $1.00 increase in the assumed initial public offering price of $ per common share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase total consideration paid by investors in this offering by $ million, assuming the number of common shares offered by us remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. A $1.00 decrease in the assumed initial public offering price per common share would result in equal changes in the opposite direction. We will not receive any of the proceeds from any sale of common shares in this offering by the selling shareholders, including if the underwriters exercise their option to purchase additional common shares from the selling shareholders; accordingly, there is no dilutive impact as a result of these sales.

If the underwriters exercise in full their option to purchase additional common shares in full, our existing shareholders would own % and our new investors would own % of the total number of common shares outstanding upon completion of this offering. The total consideration paid by our existing shareholders would be approximately $ million, or %, and the total consideration paid by investors purchasing shares in this offering would be $ million, or %.

We will reserve common shares for future issuance under the Omnibus Incentive Plan, which will be effective upon the completion of the offering. To the extent that any options or other equity incentive grants are issued in the future, new investors may experience further dilution. In addition, we may choose to raise additional capital due to market conditions or strategic considerations, even if we have sufficient funds for our current or future operating plans. To the extent that we raise additional capital through the sale of equity or securities convertible into equity, the issuance of sale securities could result in further dilution.

The dilution information above is for illustrative purposes only. Our pro forma as adjusted net tangible book value following the consummation of this offering is subject to adjustment based on the actual initial public offering price of our shares and other terms of this offering determined at pricing.

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA

The following tables set forth our selected statements of operations, balance sheet data and other data for the periods or as of the dates indicated. The selected statements of operations and balance sheet data as of and for the years ended December 31, 2018 and 2017 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected statements of operations and balance sheet data as of and for the three months ended March 31, 2019 and 2018 have been derived from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements except for the adoption of ASU 2016-01. In the opinion of our management, our unaudited interim consolidated financial statements included elsewhere in this prospectus include all adjustments, consisting of only normal and recurring adjustments, necessary for a fair presentation of the information set forth herein. Our historical results are not necessarily indicative of the results expected for any future periods, and our results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results expected for the full fiscal year.

You should read the following information together with our consolidated financial statements and accompanying notes thereto included elsewhere in this prospectus, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

	Three Months Ended March 31,						Year Ended December 31,
	2019			2018			2018			2017
	(in thousands, except share and per share data)
Statements of Operations Data:

Revenues
Premiums earned	$	92,794		$	92,468		$	377,940		$	338,626
Policy service fee revenues		6,739			6,865			28,568			27,259
Net investment income		2,825			1,780			8,892			9,247
Net realized gains on investments⁽¹⁾		60			151			416			2,279
Net holding period gains (losses)⁽¹⁾		6,170			(62	)		—			—
Loss on sale and impairment of property and equipment		—			—			(1,103	)		(895	)
Other income		3,303			4,190			14,761			18,265
Total revenues	$	111,891		$	105,392		$	429,474		$	394,781

Expenses
Losses and loss adjustment expenses	$	58,214		$	61,038		$	251,734		$	234,433
Underwriting, acquisition, insurance and other expenses		53,492			46,461			151,806			133,702
Interest expense		217			181			799			671
Total expenses		111,923			107,680			404,339			368,806
Income (loss) before income taxes		(32	)		(2,288	)		25,135			25,975
Income tax expense (benefit)		(6	)		(553	)		4,983			6,962
Net income (loss)	$	(26	)	$	(1,735	)	$	20,152		$	19,013

Basic net income (loss) per common share, voting and non-voting	$	(0.83	)	$	(56.17	)	$	653.08		$	615.29
Diluted net income (loss) per common share, voting and non-voting		(0.83	)		(56.17	)		651.56			615.29

Pro Forma EPS Data⁽²⁾
Basic net income per common share, voting and non-voting							$
Diluted net income per common share, voting and non-voting							$

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	Three Months Ended March 31,				Year Ended December 31,
	2019		2018		2018		2017
	(in thousands, except share and per share data)
Balance Sheet Data (as of period end)
Total investments	$	304,804	$	301,060	$	284,963	$	296,496
Total assets		501,318		491,631		494,437		462,708
Loss and loss adjustment expense reserves		123,938		122,122		129,488		122,053
Unearned premium reserves		112,367		119,028		94,031		92,038
Debt and capital lease obligations		13,193		13,218		13,200		13,222
Total liabilities		314,156		304,434		310,336		269,954
Total shareholders’ equity	$	187,162	$	187,197	$	184,101	$	192,754

(1)

The Company adopted ASU 2016-01 on January 1, 2019 and applied it using the modified retrospective approach without restating prior period amounts.

(2)

Our board of directors declared a dividend to our shareholders totaling $21.6 million on November 26, 2018. The dividend was paid on January 18, 2019. Under applicable SEC guidance, dividends declared in the year preceding an initial public offering are deemed to be in contemplation of the offering with the intention of repayment out of offering proceeds to the extent that the dividends exceeded earnings during such period. Pro forma earnings per share for the year ended December 31, 2018 give effect to the sale of the number of shares the proceeds of which would have been necessary to pay the dividend amount that is in excess of earnings during the year ended December 31, 2018.

For purposes of calculating pro forma earnings per share for the year ended December 31, 2018 we used the initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover of this prospectus.

The following table presents the computation of pro forma basic and diluted earnings per share:

	For the Year Ended December 31, 2018
	Basic				Diluted
(in thousands, except share and per share data)	Voting Common Shares		Non- voting Common Shares		Voting Common Shares		Non- voting Common Shares
Net income attributable to us	$	198	$	19,954	$	197	$	20,227
Weighted average number of common shares outstanding		303		30,554		303		31,045
Shares issued in offering to pay dividends in excess of earnings^(a)
Pro forma weighted average shares outstanding
Pro forma earnings per share	$		$		$		$
(a) Calculation of shares issued in offering to pay dividends in excess of earnings:
Dividends declared in last twelve months					$	212	$	21,379
Net income attributable to us in the last twelve months						197		20,227
Dividends in excess of earnings						15		1,152
Assumed IPO price					$		$
Shares issued in the IPO to pay dividends in excess of earnings

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and accompanying notes included elsewhere in this prospectus. This discussion and analysis contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, such as those set forth under “Risk Factors” and elsewhere in this prospectus, our actual results may differ materially from those anticipated in these forward-looking statements. See “Forward-Looking Statements.”

Overview

We are an established and growing direct-to-consumer personal automobile insurance company. We primarily sell liability insurance at states’ minimum financial responsibility limits in order to provide access to affordable personal automobile insurance to consumers who depend on their cars to reach their jobs and take care of their families. Our consumers prioritize flexibility and convenience, are budget-conscious and are generally underserved by the traditional insurance industry. We have developed and refined an approach that enables consumers to access our products anytime and anywhere, provides greater purchase, payment and policy maintenance flexibility and enables efficient claims management. We provide our customers a convenient self-service platform to manage their policies online and through our mobile app, while offering the ability to cease and resume coverage over a longer reinstatement period relative to our competitors without a burdensome re-application process. Our sophisticated data analytics capabilities enhance our ability to efficiently reach and segment consumers, continually calibrate pricing and policy terms and shorten management decision cycle times in order to rapidly adapt our product offering to evolving market conditions and consumer demand.

Beginning in 2012, we began expanding our management team and hired a number of seasoned insurance, marketing and product executives, including our current President and CEO, to help us implement a new growth strategy aimed at reaching a broader universe of consumers while continuing to drive operating profitability. Since then, we have developed a robust, analytical culture to improve our pricing sophistication, systems and claims capabilities and to empower our managers to make real-time, data-driven pricing and marketing decisions. Over this period, we have also invested in our technology infrastructure and built out our online and mobile capabilities, enabling us to interact with consumers through multiple contact points and maximize our ability to capture demand. Additionally, our emphasis on our data-driven culture and analytical capabilities empowers employees throughout our organization to act responsively by adjusting pricing, underwriting and media spending in order to adapt quickly to local market conditions. With this change in strategy, we have grown our business and generated attractive returns.

We sell personal automobile insurance products and related products in 28 states. We currently issue coverage in 17 states, operate solely as an insurance agency in an additional 11 states and generate leads through our nationwide brand presence in all 50 states and the District of Columbia. We operate in one reportable business segment.

We derive our revenues principally from:

•

premiums we earn from sales of personal automobile insurance;

•

policy service fee revenues that we earn in connection with billing and servicing of our insurance policies; and

•

net investment income we earn on our invested assets.

In addition, we generate other income through our retail agency platform from commissions earned on the distribution of products underwritten by other insurance providers and fees we receive for referring consumers to other insurance providers. We also generate income from policy origination fees we charge.

Selected Components of our Results of Operations

Revenues

Premiums earned. Premiums earned represent the earned portion of our net premiums written, as described below. We record our insurance premiums earned on a pro rata basis over the term of a policy. Our insurance policies generally are sold with a six-month term.

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Net premiums written are the amounts received or to be received for insurance policies written or assumed by us during a specific period of time, less the portion of premiums written that is ceded to a third-party insurer under our reinsurance agreement. For the three months ended March 31, 2019 and 2018 and each of the years ended December 31, 2018 and December 31, 2017, less than 1% of our premiums earned were ceded to a third-party reinsurer. The volume of our net premiums written in any given period is principally influenced by:

•

new policies written;

•

renewals of existing policies; and

•

premium rates for those policies.

Policy service fee revenues. Policy service fee revenues consist of various fees we charge in connection with our policies, consisting of installment billing fees, reinstatement fees, underwriting report fees and other fees. We record most of these fees as earned when they are billed, but we defer underwriting report fees and reinstatement fees and amortize each over the life of the respective policy.

Net investment income. We earn investment income on our portfolio of cash and invested assets. Our cash and invested assets consist of short-term investments, fixed maturity securities, equity securities (including exchange-traded funds) and alternative investments through LPs and LLCs. We provide more details about our investments in “—Investments” below and in “Business—Investments.” The principal factors that influence net investment income are the size of our investment portfolio and the overall yield on our portfolio. As measured by amortized cost (which excludes changes in fair value), the size of our investment portfolio is mainly a function of the amount of reserves and surplus we invest in various securities and other investment products.

Net realized gains on investments. Net realized gains on investments represent the cumulative amount of realized gains and losses resulting from the sale of our investment securities as well as the change in our company-owned life insurance (“COLI”) assets. Realized gains and losses on disposals of investments are determined in accordance with the methodology known as the specific identification method.

Net holding period gains (losses). Net holding period gains (losses) represent the amount of change in fair value of equity securities as well as changes in the value of our COLI assets. Effective January 1, 2019, we adopted ASU 2016-01, which required changes in the fair value of equity securities to be recognized as a component of net income. Prior to 2019, changes in fair value of equity securities were recorded as part of other comprehensive income, and changes in the value of COLI assets were recorded in net realized gains on investments. Changes in the value of COLI assets for the three months ended March 31, 2018 have been reclassified to net holding period gains (losses) to conform to the current period presentation.

Other income. Other income is derived from various sources, including commissions generated by sales of third-party insurance products and lead revenues earned from third parties to whom we refer customers, as well as policy origination fees, which we charge customers at inception and amortize over the life of the policy or charge monthly. We also record various one-time income items as other income.

Expenses

Losses and LAE. Losses and loss adjustment expenses (“LAE”) are determined by the number of claims incurred on the insurance contracts we write. In general, our losses and LAE are affected by:

•

the frequency of claims associated with the insurance contracts that we write;

•

the severity of paid claims;

•

the legal and regulatory environment related to the business we write;

•

the costs to operate our claims department, including salaries and benefits of our claims staff; and

•

legal defense costs.

Losses and LAE are based on analyses of the estimated losses, including losses incurred during the relevant financial statement period and changes in estimated costs for losses in prior periods.

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Underwriting, acquisition, insurance and other expenses. Underwriting, acquisition, insurance and other expenses are principally comprised of general and administrative expenses of our insurance business, including:

•

advertising;

•

salaries and benefits;

•

taxes paid on premiums received;

•

equity plan compensation;

•

bad debt expense;

•

technology costs;

•

amortization of deferred policy acquisition costs, which include the capitalized portion of certain employee costs, premium taxes, direct sales costs and other underwriting costs; and

•

maintenance and other general expenses.

Income tax expense. Our income tax expense relates to federal and state income taxes. We file a consolidated federal income tax return, which includes all of our subsidiaries.

Key Performance Metrics

We regularly monitor the key ratios presented and described below, which we believe provide useful information about our business and the operational factors underlying our financial performance.

	Three Months Ended March 31,						Year Ended December 31,
	2019			2018			2018			2017			2016			2015			2014
Key financial ratios — GAAP
Loss ratio		62.7	%		66.0	%		66.6	%		69.2	%		75.2	%		76.7	%		71.3	%
Expense ratio		46.8	%		38.3	%		28.7	%		26.0	%		23.3	%		21.7	%		26.5	%
Combined ratio		109.5	%		104.3	%		95.3	%		95.2	%		98.5	%		98.4	%		97.8	%
Return on equity		0.0	%		(0.9	)%		10.7	%		10.3	%		6.8	%		8.2	%		12.1	%

Key financial ratios — Non-GAAP
Adjusted combined ratio		108.2	%		103.3	%		93.9	%		94.8	%		95.1	%		97.6	%		95.5	%
Adjusted return on equity		(2.2	)%		(0.6	)%		12.7	%		9.3	%		10.1	%		9.7	%		14.9	%

Financial data for the years ended December 31, 2016, 2015, and 2014 have been derived from our consolidated financial statements not included in this prospectus.

Loss ratio is the ratio (expressed as a percentage) of losses and LAE incurred to premiums earned at period end. It measures the loss costs of a company’s insurance business.

The following summarizes the factors affecting our loss ratio for the periods presented above:

•

Our loss ratio decreased 3.3 percentage points for the three months ended March 31, 2019 compared to the three months ended March 31, 2018. The decrease was primarily due to an increase in average premiums earned.

•

Our loss ratio decreased 2.6 percentage points in 2018 compared to 2017. The decrease was primarily due to an increase in average premiums earned.

•

Our loss ratio decreased 6.0 percentage points in 2017 compared to 2016. The decrease was primarily due to an increase in average premiums earned. Our loss ratio in 2017 was also favorably impacted by our ceasing operations of our independent agency channel business in early 2017.

•

Our loss ratio decreased 1.5 percentage points in 2016 compared to 2015. The decrease was primarily due to premiums earned decreasing at a lesser rate than our losses and LAE. The decrease in our loss ratio was partially offset by a higher loss ratio in our independent agency channel business.

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•

Our loss ratio increased 5.4 percentage points in 2015 compared to 2014. The increase was primarily due to losses and LAE increasing at a greater rate than premiums earned. Losses increased during the period due to greater loss frequency and severity.

Expense ratio is the ratio (expressed as a percentage) of underwriting, acquisition, insurance and other expenses, net of policy service fee revenues and other income, to premiums earned at period end. It measures a company’s operational efficiency.

The following summarizes the factors affecting our expense ratio for each of the periods presented above:

•

Our expense ratio increased 8.5 percentage points for the three months ended March 31, 2019 compared to the three months ended March 31, 2018. The increase in our expense ratio was primarily due to increased advertising spending in the three months ended March 31, 2019.

•

Our expense ratio increased 2.7 percentage points in 2018 compared to 2017. The increase was due to an increase in advertising spending in 2018, a decrease in policy service fee revenues as a percentage of premiums earned in 2018, and a decrease in other income in 2018 primarily due to $4.0 million of COLI proceeds received only in 2017.

•

Our expense ratio increased 2.7 percentage points in 2017 compared to 2016. The increase was primarily due to an increase in advertising spending, bad debt expense and commissions in 2017, partially offset by an increase in other income due to $4.0 million of COLI proceeds received only in 2017.

•

Our expense ratio increased 1.6 percentage points in 2016 compared to 2015. The increase was primarily due to a decrease in policy service fee revenues and an increase in advertising spending in 2016, partially offset by a decrease in other operating costs.

•

Our expense ratio decreased 4.8 percentage points in 2015 compared to 2014. The decrease was primarily due to a decrease in advertising spending, commissions and staff costs in 2015.

Combined ratio is the sum of the loss ratio and the expense ratio and measures a company’s underwriting profit or loss. If the combined ratio is below 100%, a company has an underwriting profit because the sum of losses and LAE and underwriting, acquisition, insurance and other expenses, net of policy service fee revenues and other income, is less than premiums earned. If the combined ratio is at or above 100%, a company has an underwriting loss because the sum of losses and LAE and underwriting, acquisition, insurance and other expenses, net of policy service fee revenues and other income, is greater than premiums earned.

Changes in our combined ratios between the periods presented above occurred as a direct result of the changes in the loss ratios and expense ratios between those periods.

Return on equity is the ratio (expressed as a percentage) of net income to shareholders’ equity. It measures how effectively management is using shareholders’ capital.

The following summarizes the factors affecting our return on equity for the periods presented above:

•

Return on equity increased 0.9 percentage points for the three months ended March 31, 2019 compared to the three months ended March 31, 2018. The increase in our return on equity was primarily due to an increase in holding period gains and investment income in the three months ended March 31, partially offset by an increase in the combined ratio in that period.

•

Return on equity increased 0.4 percentage points in 2018 compared to 2017, primarily due to an increase in net income of 6%, which increased primarily due to a reduction in the federal statutory income tax rate in 2018.

•

Return on equity increased 3.5 percentage points in 2017 compared to 2016, primarily due to an increase in net income of 69%, which increased primarily due to an increase in premiums earned and a decrease in the combined ratio.

•

Return on equity decreased 1.4 percentage points in 2016 compared to 2015, primarily due to a decrease in net income of 13%. Net income decreased primarily due to an increase in income tax expense in 2016, partially offset by an increase in net investment income.

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•

Return on equity decreased 3.9 percentage points in 2015 compared to 2014, primarily due to a decrease in net income of 25%. Net income decreased primarily due to an increase in loss and LAE expense due to less favorable development in 2015.

Adjusted combined ratio is a non-GAAP financial measure. We define adjusted combined ratio as the combined ratio, adjusted to exclude the effects of the following items:

•

the impact on our combined ratio of our independent agency channel business, which began operations in 2015 and ceased operations in 2017;

•

benefits from COLI policies taken out by us relating to certain of our executive and former executive employees and board members received upon the death of an insured individual;

•

non-cash share-based compensation expense for awards issued under our non-qualified compensatory share compensation plan and other non-cash executive long-term incentive compensation expense accruals. For more information about our long-term incentive compensation program, see “Executive and Director Compensation” and Note 1 to our consolidated financial statements included elsewhere in this prospectus; and

•

other executive compensation expense recognized and paid, including expenses related to the termination of our 2006 Incentive Equity Plan in 2014, certain cash bonuses paid to our CEO, and certain cash bonuses paid to holders of options issued under our current share option plan.

See “—Non-GAAP Financial Measures” for a reconciliation of adjusted combined ratio to combined ratio in accordance with GAAP.

The following summarizes the factors affecting our adjusted combined ratio for the periods presented above:

•

Our adjusted combined ratio increased in the three months ended March 31, 2019 compared to the three months ended March 31, 2018, primarily due to an increase in the expense ratio.

•

Our adjusted combined ratio decreased in each of the years ended 2016, 2017 and 2018 primarily due to decreases in the loss ratio in each of those years. The adjusted combined ratio increased in 2015 compared to 2014 primarily due to an increase in the loss ratio.

Adjusted return on equity is a non-GAAP financial measure. We define adjusted return on equity as adjusted net income for the period divided by average shareholders’ equity during the period. See “—Non-GAAP Financial Measures” for a reconciliation of adjusted net income to net income in accordance with GAAP. We define return on equity as net income for the period divided by the average of beginning and ending shareholders’ equity during the period.

The following summarizes the factors affecting our adjusted return on equity for the periods presented above:

•

Adjusted return on equity decreased 1.6 percentage points for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily due to higher advertising expenses in the three months ended March 31, 2019.

•

Adjusted return on equity increased 3.4 percentage points in 2018 compared to 2017, primarily due to an increase in adjusted net income of 40%. Growth in adjusted net income in 2018 was driven by an increase in premiums earned, a decrease in our combined ratio and a reduction in the federal statutory income tax rate.

•

Adjusted return on equity decreased 0.8 percentage points in 2017 compared to 2016, primarily due to an increase in average shareholders’ equity of 6%, partially offset by a decrease in adjusted net income of 3%.

•

Adjusted return on equity increased 0.4 percentage points in 2016 compared to 2015, primarily due to an increase in adjusted net income of 9%. The increase in adjusted net income in 2016 was due to a decrease in our combined ratio and an increase in net investment income, partially offset by an increase in income tax expense in 2016.

•

Adjusted return on equity decreased 5.2 percentage points in 2015 compared to 2014, primarily due to a decrease in adjusted net income of 28%. The decrease in adjusted net income was due to an increase in our combined ratio and a decrease in net investment income.

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Certain Factors and Trends Affecting Our Results of Operations

Seasonality. Our business, particularly our premiums written and earned, is generally affected by seasonality. The first quarter of the year tends to produce greater premiums written than subsequent quarters. Premiums earned are historically highest in the second quarter, as premiums earned typically lag behind premiums written. Additionally, our expenses and losses are similarly impacted by seasonality and are generally expected to be highest in the first quarter of the year. For example, our advertising expenses are generally higher in the first quarter, which results in a higher expense ratio during the first quarter.

Cyclicality of the personal automobile insurance market. We generate the majority of our revenues through sales of personal automobile insurance products. The personal automobile insurance industry is cyclical, with alternating hard and soft market conditions. A hard market is generally characterized by carriers raising premiums, reducing products, tightening contractual terms and restricting their underwriting capacity. Conversely, a soft market is generally characterized by carriers lowering premiums, expanding products or loosening contractual terms and expanding underwriting capacity. Hard or soft markets may arise at the national, state or local level or be specific to the personal automobile insurance line or the insurance industry generally. In recent years, we have generally seen a mix of hard and soft markets for personal automobile insurance in the states in which we operate. However, such conditions are subject to change. Our ability to continue to grow revenues and enhance our profitability may be adversely affected by any softening of the market, as we may take actions, such as lowering premiums or loosening terms and conditions, in an effort to remain competitive with other carriers.

Recent trends in new policies sold and policies in force. During the three months ended March 31, 2019, we experienced a modest decrease in policies in force due to a decline in new policies sold. During this period, we saw signs of a softening in demand in certain states for the primary products we sell. We expect this trend to persist for the near term, and although we expect new policies sold to grow in the long term, we cannot predict when, or at what rate, this may occur. See “—Results of Operations—Three Months Ended March 31, 2019 Compared to Three Months Ended March 31, 2018.”

Results of Operations

Three Months Ended March 31, 2019 Compared to Three Months Ended March 31, 2018

The following table summarizes our results of operations for the three months ended March 31, 2019 and 2018:

	Three Months Ended March 31,						Change			Percent Change
	2019			2018			Change			Percent Change
	($ in thousands)
Statements of operations data

Revenues
Premiums earned	$	92,794		$	92,468		$	326			0.4	%
Policy service fee revenues		6,739			6,865			(126	)		1.8	%
Net investment income		2,825			1,780			1,045			58.7	%
Net realized gains on investments		60			151			(91	)		(60.3	%)
Net holding period gains (losses)		6,170			(62	)		6,232		NM
Other income		3,303			4,190			(887	)		(21.2	%)
Total revenues	$	111,891		$	105,392		$	6,499			6.2	%
Expenses
Losses and loss adjustment expenses	$	58,214		$	61,038		$	(2,824	)		(4.6	%)
Underwriting, acquisition, insurance and other expenses		53,492			46,461			7,031			15.1	%
Interest expense		217			181			36			19.9	%
Total expenses		111,923			107,680			4,243			3.9	%
Loss before income taxes		(32	)		(2,288	)		2,256			98.6	%
Income tax benefit		(6	)		(553	)		547			98.9	%
Net loss	$	(26	)	$	(1,735	)	$	1,709			98.5	%

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Revenue Highlights

Premiums earned. Premiums earned increased $0.3 million, or 0.4%, to $92.8 million for the three months ended March 31, 2019, from $92.5 million for the three months ended March 31, 2018. The slight growth in premiums earned was primarily due to a modest increase in average premiums earned in the first quarter of 2019, partially offset by a decrease in average policies in force. The modest decrease in policies in force was due to a decline in new policies sold. During the three months ended March 31, 2019, we saw signs of softening demand in certan states for the primary products we sell, which we expect to persist for the near term.

Policy service fee revenues. Policy service fee revenues decreased $0.1 million, or 1.8%, to $6.7 million for the three months ended March 31, 2019, from $6.8 million for the three months ended March 31, 2018. This decrease was primarily due to a decrease in average policies in force.

Net investment income. Net investment income increased $1.0 million, or 58.7%, to $2.8 million for the three months ended March 31, 2019, from $1.8 million for the three months ended March 31, 2018. The increase was primarily due to stronger performance of our investments in LPs and LLCs in the first quarter of 2019.

Net realized gains on investments. Net realized gains on investments decreased $0.1 million, or 60.3%, to $0.1 million for the three months ended March 31, 2019, from $0.2 million for the three months ended March 31, 2018. The decrease was primarily due to an increase in gross realized losses on the sale of fixed maturity securities in the three months ended March 31, 2019.

Net holding period gains (losses). Net holding period gains increased to $6.2 million for the three months ended March 31, 2019 from a loss of $0.1 million for the three months ended March 31, 2018. Effective January 1, 2019, we adopted ASU 2016-01, which required changes in the fair value of equity securities to be recognized as a component of net income. During the first quarter of 2019, we recognized $4.4 million in gains related to our equity securities. The remaining $1.8 million increase was due to the increase in value of our COLI policy assets during the first quarter of 2019.

Other income. Other income decreased $0.9 million, or 21.2%, to $3.3 million for the three months ended March 31, 2019, from $4.2 million for the three months ended March 31, 2019. The decrease was primarily due to lower fee income as a result of a decrease in new policy sales and a decline in lead revenue in first quarter of 2019 compared to 2018, which we expect to persist in the near term.

Expenses

Loss ratio and losses and LAE. Our loss ratio was 62.7% for the three months ended March 31, 2019, compared to 66.0% for the three months ended March 31, 2018.

The following table summarizes factors affecting our loss ratio for the three months Ended March 31, 2019 and 2018:

	Three Months Ended March 31,
	2019						2018
	Losses and Loss Adjustment Expenses			% of Premiums Earned			Losses and Loss Adjustment Expenses			% of Premiums Earned
	($ in thousands)
Loss ratio:
Current accident year	$	61,974			66.8	%	$	63,871			69.1	%
Effect of prior year development⁽¹⁾		(3,760	)		(4.1	)%		(2,833	)		(3.1	)%
Total	$	58,214			62.7	%	$	61,038			66.0	%

(1)

We define prior year development as the amount by which estimated losses for accident periods prior to the current accident year differ from those previously reported for such periods.

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Our loss ratio decreased 3.3 percentage points in the three months ended March 31, 2019 compared to the three months ended March 31, 2018. The decrease was due to a 2.3 percentage point decline in our current accident year loss ratio and a 1.0 percentage point increase in the favorable benefit of prior year development. The decrease in the current accident year loss ratio was primarily due to an increase in average premiums earned. The increase in the favorable benefit of prior year development was due to the favorable development in our estimate of losses in prior accident years due to lower than expected severity for claims. This was partially offset by less favorable LAE development in the three months ended March 31, 2019.

Underwriting, acquisition, insurance and other expenses. Underwriting, acquisition, insurance and other expenses increased $7.0 million, or 15.1%, to $53.5 million in the three months ended March 31, 2019, from $46.5 million in the three months ended March 31, 2018. The increase was primarily due to an increase in advertising expense in the three months ended March 31, 2019 compared to the three months ended March 31, 2018.

Expense ratio. Our expense ratio was 46.8% for the three months ended March 31, 2019, compared to 38.3% for the three months ended March 31, 2018.

The following table summarizes the components of our expense ratio for the three months Ended March 31, 2019 and 2018:

	Three Months Ended March 31,
	2019						2018
	Underwriting Expenses			% of Premiums Earned			Underwriting Expenses			% of Premiums Earned
	($ in thousands)
Net commissions incurred⁽¹⁾	$	331			0.4	%	$	538			0.6	%
Other underwriting, insurance and other expenses		53,161			57.3	%		45,923			49.7	%
Underwriting, acquisition, insurance and other expenses	$	53,492			57.7	%	$	46,461			50.3	%
Less: Policy service fee revenues	$	(6,739	)		(7.3	)%	$	(6,865	)		(7.5	)%
Less: Other income	$	(3,303	)		(3.6	)%	$	(4,190	)		(4.5	)%
Expense ratio					46.8	%					38.3	%

(1)

We define net commissions incurred as the fee, based on a percentage of revenues generated, we pay to an external insurance broker for policies sold on our behalf.

The 8.5 percentage point increase in our expense ratio in the three months ended March 31, 2019 compared to the three months ended March 31, 2018 was due to the combination of a 7.4 percentage point increase in underwriting, acquisition, insurance and other expenses and a 0.9 percentage point decrease in other income during the period. The increase in underwriting, acquisition, insurance and other expenses was primarily due to an increase in advertising expense in the three months ended March 31, 2019. The decrease in other income was primarily due to lower fee income on new policy sales in the three months ended March 31, 2019 compared to the three months ended March 31, 2018.

Combined ratio. Our combined ratio was 109.5% for the three months ended March 31, 2019 compared to 104.3% for the three months ended March 31, 2018. The increase was due to the 8.5 percentage point increase in the expense ratio, offset by the 3.3 percentage point decrease in the loss ratio in the three months ended March 31, 2019.

Income tax benefit. Our income tax benefit decreased $0.5 million, or 98.9%, to $0.0 million for the three months ended March 31, 2019, from $0.5 million for the three months ended March 31, 2018. The decrease was due to a lower net loss before income taxes in the three months ended March 31, 2019.

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Year Ended December 31, 2018 Compared to Year Ended December 31, 2017

The following table summarizes our results of operations for the years ended December 31, 2018 and 2017:

	Year Ended December 31,									Percent Change
Statements of operations data	2018			2017			Change			Percent Change
	($ in thousands)
Revenues
Premiums earned	$	377,940		$	338,626		$	39,314			11.6	%
Policy service fee revenues		28,568			27,259			1,309			4.8	%
Net investment income		8,892			9,247			(355	)		(3.8	)%
Net realized gains on investments		416			2,279			(1,863	)		(81.7	)%
Loss on sale and impairment of property and equipment		(1,103	)		(895	)		(208	)		23.2	%
Other income		14,761			18,265			(3,504	)		(19.2	)%
Total revenues	$	429,474		$	394,781		$	34,693			8.8	%

Expenses
Losses and loss adjustment expenses	$	251,734		$	234,433		$	17,301			7.4	%
Underwriting, acquisition, insurance and other expenses		151,806			133,702			18,104			13.5	%
Interest expense		799			671			128			19.1	%
Total expenses		404,339			368,806			35,533			9.6	%
Income before income taxes		25,135			25,975			(840	)		(3.2	)%
Income tax expense		4,983			6,962			(1,979	)		(28.4	)%
Net income	$	20,152		$	19,013		$	1,139			6.0	%

Revenues

Premiums earned. Premiums earned increased $39.3 million, or 11.6%, to $377.9 million for the year ended December 31, 2018, from $338.6 million for the year ended December 31, 2017. The growth in premiums earned in 2018 was due to an increase in average premiums earned in 2018 compared to 2017, combined with an increase in the number of average policies in force during 2018 compared to 2017.

Policy service fee revenues. Policy service fee revenues increased $1.3 million, or 4.8%, to $28.6 million for the year ended December 31, 2018, from $27.3 million for the year ended December 31, 2017. The increase in policy service fee revenues was due to a combination of the increase in average policies in force during 2018 compared to 2017 as well as a change in mix of policies in force by state. We experienced greater policy growth in states with higher average policy service fees.

Net investment income. Net investment income decreased $0.4 million, or 3.8%, to $8.9 million for the year ended December 31, 2018, from $9.2 million for the year ended December 31, 2017. The decrease was primarily due to a reduction in the size of our equity security portfolio and weaker performance of our alternative investments through LPs and LLCs in 2018.

Net realized gains on investments. Net realized gains on investments decreased $1.9 million, or 81.7%, to $0.4 million for the year ended December 31, 2018, from $2.3 million for the year ended December 31, 2017. The decrease was primarily due to a reduction of $2.1 million in net realized gains on equity securities in 2018 compared to 2017. We sold fewer equity securities in 2018 compared to 2017 and also experienced a reduction in the value of our COLI policy assets during 2018 due to the overall decline in equity security markets. These decreases were partially offset by an increase of $0.2 million in net realized gains on fixed maturity securities as a result of selling a greater quantity of fixed maturity securities in 2018.

Loss on sale and impairment of property and equipment. Loss on sale and impairment of property and equipment increased $0.2 million, or 23.2%, to $1.1 million for the year ended December 31, 2018, from $0.9 million for the year ended December 31, 2017. The loss in 2018 was due primarily to an impairment charge we recognized on a call center. The loss in 2017 was due primarily to a loss on the sale of a different call center.

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Other income. Other income decreased $3.5 million, or 19.2%, to $14.8 million for the year ended December 31, 2018, from $18.3 million for the year ended December 31, 2017. The decrease was primarily due to $4.0 million of COLI proceeds received in 2017, whereas no such proceeds were received in 2018. This decrease was partially offset by an increase in fees earned on new policy sales in 2018 compared to 2017.

Expenses

Loss ratio and losses and LAE. Our loss ratio was 66.6% for the year ended December 31, 2018, compared to 69.2% for the year ended December 31, 2017.

The following table summarizes factors affecting our loss ratio for the years ended December 31, 2018 and 2017:

	Year Ended December 31,
	2018						2017
	Losses and Loss Adjustment Expenses			% of Premiums Earned			Losses and Loss Adjustment Expenses		% of Premiums Earned
	($ in thousands)
Loss ratio:
Current accident year	$	253,587			67.1	%	$	231,889		68.5	%
Effect of prior year development⁽¹⁾		(1,853	)		(0.5	)%		2,544		0.7	%
Total	$	251,734			66.6	%	$	234,433		69.2	%

(1)

We define prior year development as the amount by which estimated losses for accident periods prior to the current accident year differ from those previously reported for such periods.

Our loss ratio decreased 2.6 percentage points in 2018 compared to 2017. In 2017, we experienced higher than normal weather losses due to Hurricane Harvey, which led to a concentration of claims in the impacted region. We also incurred $2.1 million of losses and LAE in 2017 in connection with exiting our independent agency channel business during that year. Conversely in 2018, we recorded a $0.5 million benefit due to favorable prior year loss and LAE development in connection with our previously exited independent agency channel business.

Underwriting, acquisition, insurance and other expenses. Underwriting, acquisition, insurance and other expenses increased $18.1 million, or 13.5%, to $151.8 million for the year ended December 31, 2018, from $133.7 million for the year ended December 31, 2017. The increase was primarily due to an increase in advertising expense in 2018 compared to 2017, as well as an increase in the number of average policies in force during 2018 compared to 2017.

Expense ratio. Our expense ratio was 28.7% for the year ended December 31, 2018, compared to 26.0% for the year ended December 31, 2017.

The following table summarizes the components of our expense ratio for the years ended December 31, 2018 and 2017:

	Year Ended December 31,
	2018						2017
	Underwriting Expenses			% of Premiums Earned			Underwriting Expenses			% of Premiums Earned
	($ in thousands)
Net commissions incurred⁽¹⁾	$	1,822			0.5	%	$	2,907			0.9	%
Other underwriting, insurance and other expenses		149,984			39.7	%		130,795			38.6	%
Underwriting, acquisition, insurance and other expenses	$	151,806			40.2	%	$	133,702			39.5	%
Less: Policy service fee revenues	$	(28,568	)		(7.6	)%	$	(27,259	)		(8.1	)%
Less: Other income	$	(14,761	)		(3.9	)%	$	(18,265	)		(5.4	)%
Expense ratio					28.7	%					26.0	%

(1)

We define net commissions incurred as the fee, based on a percentage of revenues generated, we pay to an external insurance broker for policies sold on our behalf.

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The 2.7 percentage point increase in the expense ratio in 2018 was due to the combination of a 0.7 percentage point increase in underwriting, acquisition, insurance and other expenses, a 0.5 percentage point decrease in policy service fee revenues, and a 1.5 percentage point decrease in other income in 2018 compared to 2017. The increase in underwriting, acquisition, insurance and other expenses was primarily due to an increase in advertising spending in 2018. The decrease in policy service fee revenues was due to growth in premiums earned in 2018 exceeding growth in policy service fee revenues. The decrease in other income in 2018 was primarily due to $4.0 million of COLI proceeds received in 2017.

Combined ratio. Our combined ratio was 95.3% for the year ended December 31, 2018 compared to 95.2% for the year ended December 31, 2017. The slight increase was due to a 2.7 percentage point increase in the expense ratio in 2018, offset by a 2.6 percentage point decrease in the loss ratio in 2018.

Income tax expense. Our income tax expense decreased $2.0 million, or 28.4%, to $5.0 million for the year ended December 31, 2018, from $7.0 million for the year ended December 31, 2017. Our effective tax rate was 19.8% for the year ended December 31, 2018, compared to 26.8% for the year ended December 31, 2017. The reduction in the effective tax rate is primarily due to the reduction in the U.S. federal statutory tax rate in 2018 partially offset by the impact of our COLI income in 2017 on reducing the 2017 effective rate.

On December 22, 2017, Public Law 115-97, more commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”) was enacted, significantly amending the Internal Revenue Code of 1986. The Tax Act, among other things, reduces the federal corporate income tax rate from 35% to 21% effective January 1, 2018, imposes additional limitations on net operating losses and executive compensation, allows for the full expensing of certain capital expenditures and enacts other changes impacting the insurance industry. Tax related changes are recorded in our consolidated statements of operations and other comprehensive income for the years ended December 31, 2018 and 2017. As of December 31, 2018 and 2017, we measured our net deferred income tax asset at the 21% statutory tax rate. In connection with our initial analysis of the impact of the Tax Act, we recorded a discrete net tax expense of $0.5 million in 2017 as a result of the corporate rate reduction.

SEC Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. December 22, 2018 marked the end of the measurement period for purposes of SAB 118. As such, we have completed our analysis based on legislative updates relating to the Tax Act currently available. As a result of guidance released by the IRS (Revenue Procedure 2019-06), we recorded the following adjustments to our accounting for the Tax Act during 2018:

The Tax Act changed the discount rate and payment patterns utilized to discount certain lines of business when computing the allowable tax reserve deduction. On December 19, 2018, the IRS issued Revenue Procedure 2019-06, which provided taxpayers with the applicable discount factors for use in these computations. As a result of this additional guidance, we recorded an increase to our gross deferred tax asset for loss and LAE reserves of $0.8 million and an increase to our gross deferred tax liability for reserve transition liability of $0.6 million during 2018. The recorded adjustment had no impact on our effective tax rate.

Gross Premiums Written

Gross premiums written are the amounts received or to be received for insurance policies written or assumed by us during a specified period before giving effect to any ceding of premiums under our reinsurance agreement. The following table displays our gross premiums written and net premiums written for the periods presented:

	Three Months Ended March 31,						Year Ended December 31,
	2019			2018			2018			2017			2016			2015			2014
	($ in thousands)
Gross premiums written	$	111,143		$	119,471		$	379,988		$	351,225		$	304,648		$	306,554		$	298,698
Reinsurance costs		(49	)		(49	)		(55	)		(51	)		(55	)		(79	)		(90	)
Net premiums written	$	111,094		$	119,422		$	379,933		$	351,174		$	304,593		$	306,475		$	298,608

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Financial data for the years ended December 31, 2016, 2015, and 2014 have been derived from our consolidated financial statements not included in this prospectus.

The following summarizes the factors affecting our gross premiums written for the periods presented above:

•

Gross premiums written decreased $8.3 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018, primarily due to a decrease in policies sold, partially offset by an increase in average premiums earned.

•

Gross premiums written increased $28.8 million in 2018 compared to 2017, primarily due to an increase in average premiums earned and average policies in force.

•

Gross premiums written increased $46.6 million in 2017 compared to 2016, primarily due to an increase in average premiums earned, partially offset by a decrease in average policies in force.

•

Gross premiums written decreased $1.9 million in 2016 compared to 2015, primarily due to a decrease in average policies in force, partially offset by an increase in average premiums earned.

•

Gross premiums written decreased $7.9 million in 2015 compared to 2014, primarily due to a decrease in average policies in force partially offset by an increase in average premiums earned.

Liquidity and Capital Resources

Sources and Uses of Funds

We are organized as a holding company, and our operations are conducted by our wholly-owned insurance and non-insurance subsidiaries. Our non-insurance subsidiaries provide a variety of services to support the operations of our primary insurance subsidiary, Safe Auto Insurance Company, an Ohio insurance company. In 2018, we established Safe Auto Choice Insurance Company and Safe Auto Value Insurance Company, each an Ohio insurance company, as underwriting company subsidiaries. As of March 31, 2019, these two subsidiaries are still in the startup phase. Our holding company has continuing cash needs for administrative expenses, taxes, dividends to shareholders and the payment of principal and interest on borrowings. These ongoing obligations are funded with dividends from our subsidiaries and net investment income. Tax expense and recoveries are shared with each subsidiary in accordance with our intercompany tax allocation agreement.

There are no restrictions on the payment of dividends by us or our non-insurance subsidiaries other than customary state corporation laws. Under state insurance laws, dividends from our insurance subsidiaries are subject to restrictions relating to statutory surplus and earnings. Prior approval from state insurance regulatory authorities is generally required in order for any of our insurance subsidiaries to pay extraordinary dividends to the holding company. Under the laws of Ohio, an extraordinary dividend is defined as any dividend or distribution of cash or other property whose fair market value, together with that of other dividends paid or distributions made within the preceding 12 months, exceeds the greater of 10% of the insurance company’s policyholders’ surplus as of the preceding December 31 or the net income of the insurance company for the 12-month period ended as of the preceding December 31, in each case determined in accordance with statutory accounting principles. Any dividend or distribution paid from sources other than earned surplus also is considered an extraordinary dividend. The maximum amount of dividends that our insurance subsidiaries are permitted to pay to us during 2018 and 2019 without seeking regulatory approval is $33.8 million and $22.5 million, respectively. On November 26, 2018, Safe Auto Insurance Company declared an ordinary dividend of $13.8 million and an extraordinary dividend of $20.0 million to us.

In addition, the Risk-Based Capital Model Act adopted by the NAIC provides formulas to determine the amount of capital that an insurance company must maintain to ensure that it has an acceptable expectation of not becoming financially impaired. A low risk-based capital ratio could prevent an insurance company from paying dividends. At December 31, 2018, our insurance subsidiaries maintained a risk-based capital level that is in excess of an amount that would require any corrective actions on our part.

Our insurance subsidiaries’ primary sources of funds are premiums earned, policy service fee revenues, net investment income, other income and proceeds from the sale and redemption of investments. Funds are primarily used to pay claims and operating expenses and to purchase investments.

Our insurance subsidiaries’ operations create cash flow by collecting and investing premiums and fees from new and renewal business in advance of paying claims. For the years ended December 31, 2018 and 2017, we

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generated positive operating cash flows of $42.7 million and $22.5 million, respectively. For the three months ended March 31, 2019 and 2018, we recorded net cash used in operating activities of $2.6 million and net cash provided by operating activities of $10.0 million, respectively. We anticipate our annual operating cash flows to be positive in the foreseeable future, although our operating cash flows may fluctuate on a quarterly basis. Accordingly, we believe that the liquidity provided by our existing cash and cash equivalents, as well as new cash flows generated from operations and this offering, will be adequate to meet our liquidity needs for at least the next 12 months.

To fund our long-term capital requirements, we will require future liquidity for general and administrative expenses, the payment of interest and principal on our junior subordinated debentures that are redeemable at and mature on June 17, 2034, the settlement of current and future loss and LAE reserves, the growth and maintenance of our IT infrastructure, operating systems, and data warehouse, advertising, taxes and shareholder dividends. We believe that the funds required to meet these obligations and anticipated expenditures will come primarily from cash generated from operations, investment gains and the net proceeds from this offering. Although our future operating cash flows, investment maturities and net proceeds from this offering may not be sufficient to meet our long-term capital requirements, we do not currently anticipate the need to maintain a line of credit under a working capital facility, issue further debt or equity instruments, or obtain any other forms of capital financing to meet our long-term capital requirements.

In the past, we have obtained sufficient liquidity from operations to fund the payment of our losses. As a result, we have managed our investment portfolio to a longer duration than the estimate of our loss and LAE reserve payouts. While the average duration of our loss and LAE reserves is estimated to be approximately one year, our fixed maturities portfolio has an average duration of 4.1 years as of December 31, 2018. We continuously monitor the maturities of our fixed maturity securities and short-term investments, and we do not anticipate that the payment of claims will be affected by these longer duration investments based on our expectations of cash flow provided from the collection of premiums. In addition, we do not currently intend to sell fixed maturity securities prior to maturity to meet our financial obligations. However, our future liquidity and operating income could be negatively impacted if we were required to sell fixed maturity securities prior to maturity, particularly since we are continuously exposed to interest rate risk.

Cash Flows

Our most significant source of cash is from premiums and fees received from our insureds, which, for most policies, we receive over the policy coverage period. Our most significant cash outflow is for payment of claims that arise when a policyholder incurs an insured loss. Because the payment of claims occurs after the receipt of premiums, we invest the cash from premiums in various investment securities that earn interest and dividends. We also use cash to pay advertising and ongoing operating expenses.

The timing of our cash flows from operating activities can vary among periods due to the timing of payments made or received. Some of our payments and receipts, including loss settlements, can be significant, such that their timing can influence cash flows from operating activities in any given period. We believe that cash receipts from premiums, proceeds from any investment sales and redemptions and net investment income are sufficient to cover cash outflows in the foreseeable future.

The following table sets forth the significant sources and uses of cash for the three months ended March 31, 2019 and 2018:

	Three Months Ended March 31,
	2019			2018
	($ in thousands)
Cash and cash equivalents provided by (used in):
Operating activities	$	(2,594	)	$	10,005
Investing activities		(7,999	)		(12,122	)
Financing activities		(21,601	)		(10	)
Change in cash and cash equivalents	$	(32,194	)	$	(2,127	)

Net cash provided by or used in operating activities. Net cash used in operating activities was $2.6 million for the three months ended March 31, 2019 and net cash provided by operating activities was $10.0 million for the three months ended March 31, 2018. Fluctuations in cash provided by operating activities are due primarily

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to the timing of premiums received and loss payments. The decrease in cash provided by or used in operating activities from the three months ended March 31, 2018 to the three months ended March 31, 2019 was primarily due to an increase in cash paid for advertising, a decrease in unearned premiums, and an increase in losses paid during the first quarter of 2019.

Net cash used in investing activities. Net cash used in investing activities was $8.0 million and $12.1 million for the three months ended March 31, 2019 and 2018, respectively.

For the three months ended March 31, 2019, we used $6.5 million in net cash from our invested assets, as purchases of fixed maturity and equity securities exceeded proceeds from sales and maturities of fixed maturity securities. Additionally, we used $1.5 million for continued development of our policy processing and billing system.

For the three months ended March 31, 2018, we used $7.9 million in net cash from our invested assets, as purchases of fixed maturity and equity securities exceeded proceeds from sales and maturities of fixed maturity securities. Additionally, we used $4.2 million for continued development of our policy processing and billing system and for purchasing property and equipment.

Net cash used in financing activities. Net cash used in financing activities was $21.6 million and $0.0 million for the three months ended March 31, 2019 and 2018, respectively. We paid dividends to our shareholders of $21.6 million during the three months ended March 31, 2019. No dividends were paid to shareholders in the three months ended March 31, 2018.

Cash and cash equivalents. We had total cash and short-term investments of $29.2 million as of March 31, 2019.

The following table sets forth the significant sources and uses of cash for the years ended December 31, 2018 and 2017:

	Year Ended December 31,
	2018			2017
	($ in thousands)
Cash and cash equivalents provided by (used in):
Operating activities	$	42,651		$	22,509
Investing activities		(5,454	)		(11,942	)
Financing activities		(313	)		(4,801	)
Change in cash and cash equivalents	$	36,884		$	5,766

Net cash provided by operating activities. Net cash provided by operating activities was $42.7 million and $22.5 million in the years ended December 31, 2018 and 2017, respectively. Fluctuations in cash provided by operating activities were due primarily to the timing of premiums received and loss payments. The increase in cash provided by operating activities from 2018 to 2017 was primarily due to an increase in premiums and fees received during 2018, partially offset by an increase in losses paid during 2018.

Net cash used in investing activities. Net cash used in investing activities was $5.4 million and $11.9 million for the years ended December 31, 2018 and 2017, respectively. During 2018 and 2017, we utilized a portion of cash provided by operations to increase our invested assets, to fund the customization of a policy processing and billing system and to purchase other property and equipment. In addition, we used cash to purchase fixed maturity, equity and alternative investments and generated cash from the maturity and sale of fixed maturity investments, the sale of equity investments, and the sale and return of alternative investments.

In 2018, we generated $5.8 million in net cash from our invested assets, as proceeds from sales and maturities of fixed maturity securities and sales of equity securities exceeded amounts we used to purchase fixed maturity and equity securities. These gains were partially offset by purchases of alternative investments through LPs and LLCs, which exceeded returns and proceeds from the sale of such investments. The remaining cash used in investing activities in 2018 was for continued development of our policy processing and billing system and purchasing property and equipment. In 2017, we used $7.8 million of net cash for our investments in fixed maturities and LPs and LLCs, as purchases of these asset classes exceeded proceeds from sales and maturities. This amount was partially offset by

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proceeds from the sale of equity securities, which exceeded equity purchases in 2017. The remaining cash used in investing activities in 2017 was for continued development of our policy processing and billing system and purchasing property and equipment, offset by $4.0 million of insurance proceeds received from a COLI policy.

Net cash used in financing activities. Net cash used in financing activities was $0.3 million and $4.8 million for the years ended December 31, 2018 and 2017, respectively. We paid dividends to our shareholders of $4.6 million during 2017. No dividends were paid to shareholders in 2018.

Cash and cash equivalents. We had total cash and short-term investments of $61.4 million as of December 31, 2018.

Financing and Capital

Junior subordinated debentures. In May 2004, we formed a special purpose trust, which issued floating rate trust preferred securities, and, in turn, purchased from us $13.4 million aggregate principal amount of floating rate junior subordinated debentures, which provide interest payments and future principal repayments to fund the trust’s obligations under the trust preferred securities. We have fully and unconditionally guaranteed the obligations of the trust’s preferred securities. The interest rate for the junior subordinated debentures and trust preferred securities is reset quarterly and is currently calculated at a rate equal to the three-month LIBOR in effect at the beginning of each interest period, plus a margin of 3.7%. The interest rate was 6.3% as of March 31, 2019. On July 27, 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced that it intends to cease compelling banks to submit rates for the calculation of LIBOR after 2021. We cannot predict the effect that changes to, or the elimination of, LIBOR will have on the interest rate of our junior subordinated debentures and trust preferred securities. The junior subordinated debentures are currently redeemable at par and mature on June 17, 2034. In accordance with Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) No. 810, Consolidation, variable interest entities that issue trust preferred securities are not consolidated for reporting purposes. The junior subordinated debt due to the trust is shown as a liability on our consolidated balance sheet.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations and credit-related commitments as of December 31, 2018. Included in the table are the estimated payments that we expect to make in the settlement of our loss and LAE reserves, debt and lease obligations.

	Less than 1 year		1-3 years		3-5 years		More than 5 years		Total
	($ in thousands)
Loss and loss adjustment expense reserves⁽¹⁾	$	89,629	$	35,019	$	3,887	$	953	$	129,488
Debt obligations⁽²⁾		—		—		—		13,403		13,403
Expected interest payments⁽³⁾		882

Assumed initial public offering price per common share

Pro forma net tangible book value per common share as of March 31, 2019

Increase in pro forma net tangible book value per common share attributable to investors in this offering

Pro forma as adjusted net tangible book value per common share immediately after this offering

Dilution per common share to investors in this offering

SAFE AUTO INSURANCE GROUP, INC. S-1